Moneyval

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Moneyval

COMMITTEE OF EXPERTS ON THE
EVALUATION OF ANTI-MONEY
LAUNDERING MEASURES AND THE
FINANCING OF TERRORISM
(MONEYVAL)
MONEYVAL(2011)1
Report on Fourth Assessment Visit
Anti-Money Laundering and Combating the
Financing of Terrorism
CZECH REPUBLIC
12 April 2011
The Czech Republic is a member of MONEYVAL. This evaluation was conducted by MONEYVAL
and the report on the 4th Assessment Visit was adopted at its 35th Plenary (Strasbourg, 11 – 14 April
2011).
© [2011] Committee of experts on the evaluation of anti-money laundering measures and the financing of
terrorism (MONEYVAL).
All rights reserved. Reproduction is authorised, provided the source is acknowledged, save where otherwise
stated. For any use for commercial purposes, no part of this publication may be translated, reproduced or
transmitted, in any form or by any means, electronic (CD-Rom, Internet, etc) or mechanical, including
photocopying, recording or any information storage or retrieval system without prior permission in writing
from the MONEYVAL Secretariat, Directorate General of Human Rights and Legal Affairs, Council of Europe
(F - 67075 Strasbourg or [email protected]).
Report on fourth assessment visit of the Czech Republic – 12 April 2011
TABLE OF CONTENTS
I. PREFACE............................................................................................................................................................................4
II. EXECUTIVE SUMMARY ...............................................................................................................................................6
III. MUTUAL EVALUATION REPORT ..........................................................................................................................12
1.1
GENERAL ............................................................................................................................................................12
1.2
GENERAL INFORMATION ON THE CZECH REPUBLIC ...............................................................................................12
1.3
GENERAL SITUATION OF MONEY LAUNDERING AND FINANCING OF TERRORISM ..................................................13
1.4
OVERVIEW OF THE FINANCIAL SECTOR AND DESIGNATED NON-FINANCIAL BUSINESSES AND PROFESSIONS
(DNFBP) ............................................................................................................................................................................15
1.5
OVERVIEW OF COMMERCIAL LAWS AND MECHANISMS GOVERNING LEGAL PERSONS AND ARRANGEMENTS.......16
1.6
OVERVIEW OF STRATEGY TO PREVENT MONEY LAUNDERING AND TERRORIST FINANCING ..................................16
2.
LEGAL SYSTEM AND RELATED INSTITUTIONAL MEASURES ..................................................................20
2.1
2.2
2.3
2.4
2.5
2.6
CRIMINALISATION OF MONEY LAUNDERING (R.1 AND R.2) ..................................................................................20
CRIMINALISATION OF TERRORIST FINANCING (SR.II )...........................................................................................37
CONFISCATION, FREEZING AND SEIZING OF PROCEEDS OF CRIME (R.3) ................................................................45
FREEZING OF FUNDS USED FOR TERRORIST FINANCING (SR.III) ...........................................................................59
THE FINANCIAL INTELLIGENCE UNIT AND ITS FUNCTIONS (R.26) ..........................................................................67
LAW ENFORCEMENT, PROSECUTION AND OTHER COMPETENT AUTHORITIES – THE FRAMEWORK FOR THE
INVESTIGATION AND PROSECUTION OF OFFENCES, AND FOR CONFISCATION AND FREEZING (R.27).....................................79
3.
PREVENTIVE MEASURES - FINANCIAL INSTITUTIONS...............................................................................86
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
RISK OF MONEY LAUNDERING / FINANCING OF TERRORISM ....................................................................................86
CUSTOMER DUE DILIGENCE, INCLUDING ENHANCED OR REDUCED MEASURES (R.5 TO R.8)...................................86
FINANCIAL INSTITUTION SECRECY OR CONFIDENTIALITY (R.4)............................................................................103
RECORD KEEPING AND WIRE TRANSFER RULES (R.10 AND SR.VII) ...................................................................106
MONITORING OF TRANSACTIONS AND RELATIONSHIP REPORTING (R.11 AND R.21) ...........................................112
SUSPICIOUS TRANSACTION REPORTS AND OTHER REPORTING (R.13 AND SR.IV)...............................................117
INTERNAL CONTROLS, COMPLIANCE, AUDIT AND FOREIGN BRANCHES (R.15 AND R.22) ...................................126
THE SUPERVISORY AND OVERSIGHT SYSTEM - COMPETENT AUTHORITIES AND SROS / ROLE, FUNCTIONS, DUTIES
AND POWERS (INCLUDING SANCTIONS) (R.23, 29, 17 AND 25) .........................................................................................131
3.9
MONEY OR VALUE TRANSFER SERVICES (SR.VI) .................................................................................................148
4.
PREVENTIVE MEASURES – DESIGNATED NON FINANCIAL BUSINESSES AND PROFESSIONS......150
4.1
4.2
4.3
5.
LEGAL PERSONS AND ARRANGEMENTS AND NON-PROFIT ORGANISATIONS .................................167
5.1
5.2
6.
LEGAL PERSONS – ACCESS TO BENEFICIAL OWNERSHIP AND CONTROL INFORMATION (R.33)..............................167
NON-PROFIT ORGANISATIONS (SR.VIII) ..............................................................................................................171
NATIONAL AND INTERNATIONAL CO-OPERATION ...................................................................................176
6.1
6.2
6.3
6.4
7.
CUSTOMER DUE DILIGENCE AND RECORD-KEEPING (R.12) ..................................................................................150
SUSPICIOUS TRANSACTION REPORTING (R.16) .....................................................................................................154
REGULATION, SUPERVISION AND MONITORING (R.24 AND R.25) .........................................................................162
NATIONAL CO-OPERATION (R.31) ........................................................................................................................176
INTERNATIONAL CO-OPERATION – CONVENTIONS (R.35 AND SR.I).....................................................................179
MUTUAL LEGAL ASSISTANCE (R.36 AND SR.V) ...................................................................................................182
OTHER FORMS OF INTERNATIONAL CO-OPERATION (R.40 AND SR.V) .................................................................186
OTHER ISSUES ........................................................................................................................................................190
7.1
7.2
7.3
RESOURCES (R.30) AND STATISTICS (R.32) .........................................................................................................190
OTHER RELEVANT AML/CFT MEASURES OR ISSUES ..........................................................................................194
GENERAL FRAMEWORK FOR AML/CFT SYSTEM (SEE ALSO 1.1) .........................................................................194
IV. TABLES ........................................................................................................................................................................195
TABLE 1. RATINGS OF COMPLIANCE WITH FATF RECOMMENDATIONS ...................................................195
TABLE 2. RECOMMENDED ACTION PLAN TO IMPROVE THE AML/CFT SYSTEM .....................................205
TABLE 3: AUTHORITIES, RESPONSE TO THE EVALUATION (IF NECESSARY)............................................217
V. COMPLIANCE WITH THE 3RD EU AML/CFT DIRECTIVE ................................................................................218
VI. LIST OF ANNEXES* ..................................................................................................................................................237
LIST OF ACRONYMS USED
AA
Association of Accountants
ABS
Banks Association
AML/CFT
Anti-Money Laundering and Combating the Financing of Terrorism
AML/CFT Law
Anti-Money Laundering Law “on some measures against the legalisation of the
proceeds of crime and on the amendment and supplementation of connected Acts”
(Act N° 253/2008 Coll – as amended by Act N° 285/2009 Coll)
C
Compliant
CBA
Czech Bar Association
CC
Criminal Code
CPC
Code of Criminal Procedure
CDA
Central Depositary Agency
CDD
Customer Due Diligence
CETS
Council of Europe Treaty Series
CFSSS
Credit & Financial Statistic Supervision Service of the CB
CFT
Combating the financing of terrorism
CNB
Czech National Bank
CR
Czech Republic
CSC
Czech Securities Commission
CTR
Cash transaction report
DNFBP
Designated Non-Financial Businesses and Professions
DRCOR
Department of the Registrar of Companies and Official Receiver
EAW
European Arrest Warrant
EC
European Commission
ETS
European Treaty Series [since 1.1.2004: CETS = Council of Europe Treaty Series]
EU
European Union
FAQ
Frequent Asked Questions
FATF
Financial Action Task Force
FAU
Financial Analytical Unit [name of the Czech FIU]
FCA
Financial Companies Association
FI
Financial Institution
FIU
Financial Intelligence Unit
FSAP
Financial Sector Assessment Program
FT
Financing of Terrorism
G-Accountants
AML Guidance Note for accountants and auditors
1
G-Banks
AML Guidance Note to Banks
G-Insurers
G-International /
Financial / Trustee
Businesses
AML Guidance Notes to life and non-life insurers
AML Guidance Notes to International Financial Services Companies, International
Trustee Services Companies, International Collective Investment schemes and their
managers or trustees as appropriate,
G-Investment
Brokers
AML Guidance Note to brokers
G-Lawyers/notaries
AML Guidance Notes for lawyers and notaries
G-MTB
AML Guidance Note to Money Transfer Businesses
GRECO
Group of States against Corruption
IBEs
International Business Enterprises
IBUs
International Banking Units
ICCS
Insurance Companies Control Service
IFAC
Chambers of Auditors of the Czech Republic
IMF
International Monetary Fund
IN
Interpretative note
IIS
Act N°. 69/2006 Coll. on Carrying Out of International Sanctions
IT
Information technologies
KYC
Know your customer
LC
Largely compliant
LEA
Law Enforcement Agency
MBFISS
Market and Banking and Financial intermediaries Supervision Service of the CB
MER
Mutual Evaluation Report
ML
Money Laundering
MLA
Mutual legal assistance
MLCO
Money Laundering Compliance Officer
MoE
Ministry of Economy
MoF
Ministry of Finance
MoI
Ministry of Interior
MoJ
Ministry of Justice
MoU
Memorandum of Understanding
MVT
Money Value Transfer
NA
Not applicable
NAP
National Action Plan to Combat Terrorism
NARA
National Asset Recovery Agency
NBFI
Non Bank Financial Institutions
2
NC
Not compliant
NCCT
Non-cooperative countries and territories
NPO
Non-Profit Organisation
OBS
Office of Banking Supervision
OECD
Organisation for Economic Co-operation and Development
OFAC
Office of Foreign Assets Control (US Department of the Treasury)
OGBS
Offshore Group of Banking Supervisors
OSCE
Organisation for Security and Co-operation in Europe
PC
Partially compliant
PEP
Politically Exposed Persons
POG’s office
Office of the Prosecutor General
SAR
Suspicious Activity Report
SIS
Special Investigation Service
SR
Special recommendation
SRO
Self-Regulatory Organisation
STRs
Suspicious transaction reports
SWIFT
Society for Worldwide Interbank Financial Telecommunication
TRO
Trust Register Office
TCSP
Trust and company service providers
UCITS
Undertakings for Collective Investment in Transferable Securities
UN
United Nations
UNSCR
United Nations Security Council resolution
UTR
Unusual Transaction Report
3
I. PREFACE
1. This is the third report in MONEYVAL’s 4th round of mutual evaluations, following up the
recommendations made in the 3rd round. This evaluation follows the current version of the 2004
AML/CFT Methodology, but does not necessarily cover all the 40+9 FATF Recommendations
and Special Recommendations. MONEYVAL concluded that the 4th round should be shorter and
more focused and primarily follow up the major recommendations made in the 3rd round.
The evaluation team, in line with procedural decisions taken by MONEYVAL, have examined the
current effectiveness of implementation of all key and core and some other important FATF
recommendations (i.e. Recommendations 1, 3, 4, 5, 10, 13, 17, 23, 26, 29, 30, 31, 35, 36 and 40,
and SRI, SRII, SRIII, SRIV and SRV), whatever the rating achieved in the 3rd round.
2. Additionally, the MONEYVAL Plenary agreed that there should be some flexibility on reassessing other Recommendations in the circumstances of the particular country. As the
competencies of Law Enforcement in respect of AML investigations have changed since the 3rd
evaluation, the evaluators concluded that it would be appropriate to re-assesses Recommendations
27.
3. Additionally, the examiners have reassessed the compliance with and effectiveness of
implementation of all those other FATF recommendations where the rating was NC or PC in the
3rd round. Furthermore, the report also covers in a separate annex issues related to the Directive
2005/60/EC of the European Parliament and of the Council of 26 October 2005 on the prevention
of the use of the financial system for the purpose of money laundering and terrorist financing
(hereinafter the “The 3rd EU Directive”) and Directive 2006/70/EC (the “implementing
Directive”). No ratings have been assigned to the assessment of these issues.
4. The evaluation was based on the laws, regulations and other materials supplied by the Czech
Republic, and information obtained by the evaluation team during its on-site visit to the Czech
Republic from 24 to 29 May 2010, and subsequently. During the on-site visit, the evaluation team
met with officials and representatives of relevant government agencies and the private sector in
the Czech Republic. A list of the bodies met is set out in Annex I to the mutual evaluation report.
5. The evaluation was conducted by an assessment team, which consisted of members of the
MONEYVAL Secretariat and MONEYVAL and FATF experts in criminal law, law enforcement
and regulatory issues and comprised: Ms Pilar Cruz-Guzman (Senior Expert – Legal area,
SEPBLAC Financial Intelligent Unit, Spain) as FATF evaluator and Mr Lajos Korona
(Public Prosecutor, Metropolitan Prosecutor’s Office, Hungary) who participated as legal
evaluators, Mr Anthony Cortis (Head of Financial Stability Department, Central Bank of
Malta) and Mr Tal Lister (Head of AML/CFT and Consumer Protection Examination Unit,
Banking Supervision Division, Bank of Israel) who participated as financial evaluators,
Mr Nicola Muccioli (Deputy Head of the FIU, “Agenzia d’Informazione Finanziaria”,
San Marino) who participated as a law enforcement evaluator, Mr John Ringguth, MONEYVAL’s
Executive Secretary, Ms Natalia Voutova and Mr Fabio Baiardi, members of the MONEYVAL
Secretariat. The experts reviewed the institutional framework, the relevant AML/CFT laws,
regulations, guidelines and other requirements, and the regulatory and other systems in place to
deter money laundering (ML) and the financing of terrorism (FT) through financial institutions
and Designated Non-Financial Businesses and Professions (DNFBP), as well as examining
the capacity, the implementation and the effectiveness of all these systems.
4
6. The structure of this report broadly follows the structure of MONEYVAL and FATF reports in the
3rd round, and is split into the following sections:
a.
b.
c.
d.
e.
f.
g.
General information
Legal system and related institutional measures
Preventive measures - financial institutions
Preventive measures – designated non financial businesses and professions
Legal persons and arrangements and non-profit organisations
National and international co-operation
Statistics and resources
Annex (implementation of EU standards).
Appendices (relevant new laws and regulations)
7. This 4th round report should be read in conjunction with the 3rd round adopted mutual evaluation
report (as adopted at MONEYVAL’s 24th Plenary meeting – 10 to 14 September 2007), which is
published on MONEYVAL’s website1. FATF Recommendations that have been considered in this
report have been assigned a rating. For those ratings that have not been considered the rating from
the 3rd round MER continues to apply.
8. Where there have been no material changes from the position as described in the 3rd round MER,
the text of the 3rd round MER remains appropriate and information provided in that assessment
has not been repeated in this report. This applies firstly to general and background information.
It also applies in respect of the ‘description and analysis’ section discussing individual FATF
Recommendations that are being reassessed in this report and the effectiveness of implementation.
Again, only new developments and significant changes are covered by this report.
The ‘recommendations and comments’ in respect of individual Recommendations that have been
re-assessed in this report are entirely new and reflect the position of the evaluators on
the effectiveness of implementation of the particular Recommendation currently, taking into
account all relevant information in respect of the essential and additional criteria which was
available to this team of examiners.
9. The ratings that have been reassessed in this report reflect the position as at the on-site visit
in 2010 or shortly thereafter.
1
http://www.coe.int/moneyval
5
II. EXECUTIVE SUMMARY
Background Information
1. This report summarises the major anti-money laundering and counter-terrorist financing measures
(AML/CFT) that were in place in the Czech Republic at the time of the 4th on-site visit (22 to 29
May 2010) and immediately thereafter. It describes and analyses these measures and offers
recommendations on how to strengthen certain aspects of the system. The MONEYVAL 4th cycle
of assessments is a follow-up round, in which Core and Key (and some other important) FATF
Recommendations have been re-assessed, as well as all those for which the Czech Republic
received non-compliant (NC) or partially compliant (PC) ratings in its 3rd round MER. This report
is not, therefore, a full assessment against the FATF 40 Recommendations and 9 Special
Recommendations but is intended to update readers on major issues in the AML/CFT system of
the Czech Republic.
Key findings
2. The evaluators were informed by the authorities that a specific AML/CFT risk assessment had not
been undertaken since the last evaluation. From the authorities with whom the issue was
discussed, it was clear that, like other countries, organised crime groups remain a continuing and
serious risk and that they are operating significantly in white-collar crime and internet fraud and
that the proceeds of their crimes are laundered in the Czech Republic. A comprehensive national
risk assessment is essential to identify vulnerable sectors within the Czech financial system in
terms of ML/FT.
3. The total damage from economic crime in 2009 was 1,068,230,000 Euros. None-the-less there is
little evidence of significant money laundering cases being taken forward by the police and the
prosecution, with a tendency noted in the previous evaluation to treat money laundering as
subsidiary to the other offences. The Czech authorities need to analyse why there is such a major
discrepancy between the types of money laundering cases being prosecuted and the incidence of
money laundering in the country.
4. The Czech authorities consider the FT risk to be low.
5. The FIU is working effectively, and more reports are now being sent to law enforcement than in
the earlier part of the period under review. The overall impact of FIU reports on law enforcement
results is difficult to quantify in the absence of relevant statistics.
6. The lack of reliable and comprehensive ML/FT supervisory statistics hinders the full analysis and
comprehension of the ML/FT risks within the Czech financial sector as well as the
implementation of an effective risk based approach. The supervisory cycle for the financial sector
is very extended and some of the riskier areas may not be covered for several years. In particular,
exchange bureaux should be subject to more targeted ML/FT on-site inspection.
7. The lack of reliable statistics and information on the performance of the law enforcement and the
judicial side in money laundering investigation, prosecutions and convictions, as well as in respect
of confiscation orders also makes it very difficult for the evaluators to asses the overall impact of
the law enforcement response to ML and for domestic authorities to analyse their own
performance in these areas.
6
8. Progress has been made since the third evaluation with the adoption of the new AML/CFT Law
implementing the 3rd EU Money Laundering Directive and many of the preventative
recommendations in the 3rd round MER.
Legal Systems and Related Institutional Measures
9. The Czech criminal substantive law, so far as criminalisation of ML and FT is concerned, is
largely the same as it was at the time of the 3rd round evaluation. While a new Criminal Code has
recently been adopted, the relevant offences remained largely the same. There are some notable
improvements, such as a clear provision ensuring that ML can be prosecuted also where the
predicate offence was committed abroad. However, the general structure of ML criminalisation
still does not provide a proper and effective legal basis in line with R.1.
10. Equally, the Czech law still does not provide for the criminal liability of legal entities, though
draft legislation, which is urgently needed, is under preparation. The Palermo Convention (signed
12 December 2000) has not been brought into force, largely because of this deficiency.
11. The evaluators noted that in spite of the structure of the criminal legislation a number of
convictions for ML (i.e. the legalisation offence) had been achieved, though rarely in serious
cases. The lack of adequate information and statistics has prevented the evaluators from drawing
overall conclusions as to the quality of the ML cases being brought to the courts. The law
enforcement authorities indicated that they had had no success with ML convictions so far in
cases involving organised crime and that ML was usually treated as subsidiary to other offences
and subsumed with the predicate offence, rather than being prosecuted separately. The evaluators
were not provided with statistics showing the proportion of cases which relate to self laundering
or the number of autonomous ML cases, including those involving the proceeds of organised
crime. In practice it appears that most of the money laundering cases being taken forward, as at
the time of the 3rd round MER, are basic cases involving stolen goods. The Czech authorities
explained that they had experienced difficulties in prosecuting more serious ML cases and that
this could result in very protracted proceedings. A number of indictments for ML, for example,
had been referred back to the prosecution to provide further evidence, which implies that the
standard of proof required by the courts may be overly high.
12. It is welcome that the TF offence in the Criminal Code has been enlarged so as to encompass
those who support an individual terrorist or a member of a terrorist organisation. Without any
actual case practice, however, it is hard to tell whether and to what extent this and other
amendments remedy all deficiencies noted in the previous report.
13. On provisional measures and confiscation, the evaluators noted some promising signs of a
growing awareness of the importance of financial investigation by the law enforcement authorities
and the prosecution. Provisional measures are said to be taken quite regularly, and in urgent cases
related to laundering offences. Without statistics on confiscation performance, however, the actual
effectiveness of the regime could not be fully assessed. The evaluators are concerned about the
imbalance between seized assets and those finally confiscated. The lack of statistics on
confiscation negatively affects the performance of the system overall.
14. The implementation of SR.III relies upon importing EU procedures into national law and national
primary and secondary legislation (an International Sanctions Act and a governmental decree) are
in place, including coverage of EU internals (which is positive). The regime has been applied for
the execution of international sanctions but these were not based upon the UNSCRs referred to in
SR.III. No freezing has occurred under SR.III. It appears nonetheless that the financial institutions
are aware of the need to check the terrorist lists. The procedure for referral to the FIU of a match
is covered by the suspicious transactions reporting obligation, of which the obliged entities were
7
also aware. Though the confusion by some reporting authorities of the obligation in SR.III with
SR. IV may mean that less emphasis is placed by some reporting entities on the disclosure of
other suspicions related to TF.
Law Enforcement Issues
15. Department 24 of the Ministry of Finance (that is the Financial Analytical Unit) is vested with the
FIU core functions. There is no separate legislation as such for the FIU. The organisational rules
of the Ministry of Finance govern the FIU’s operational procedures. While other prudential
regulators have AML/CFT supervisory functions, the FIU is also required to perform supervisory
functions on all obliged parties. The FIU is also in charge of implementing the International
Sanctions Act.
16. The staff is well trained and committed. The maximum time for the FIU analyses is two months
(which is the target set by the Director). In 2009 the FIU suspended transactions in 47 cases
though the impact of this on effective criminal asset recovery is unclear. The functions assigned to
the FIU are quite wide compared with the FIU complement.
17. STRs are mainly from the banks. Other financial institutions and the DNFBP show a significantly
lower level of reporting.
18. Within Law enforcement more seminars on AML/CFT investigations, prosecutions and
judgements would be welcome to ensure that all key players are fully aware of the importance of
financial investigation, confiscation and autonomous ML.
19. The number of STRs sent as criminal complaints to law enforcement (including non ML criminal
infringements) rose from approximately 4% of STRs in 2005/6/7 to 8.6% of STRs in 2009. The
examiners noted a more proactive approach to the follow up by the FIU of the notifications in
2009, including the copying of the referrals to the prosecution authority. It is commendable that
the FIU is seeking to ensure that its referrals result in action. This is necessary as the effective
impact of the FAU reports on overall law enforcement results appears not to have been
substantial. Very few STR generated cases had become effective money laundering investigations
during the earlier years covered by this evaluation. However, the present proactive approach of the
FIU in following up cases with domestic authorities should assist the overall results in this sector.
Preventive Measures – financial institutions
20. During the 3rd round evaluation a number of shortcomings were identified in relation to CDD
measures, identification of the originator and the beneficiary of wire transfers and identification of
the beneficial owner. Many of the recommendations were taken into account in the new 2008
AML/CFT Law. But at the time of the 4th round on site visit, the identification and verification of
the beneficial owner still needed to be embedded, in practice within the CDD process.
21. In practice, the CDD process appears largely focused, in some of the obliged entities at least, on
identification, rather than verification and in depth analysis of beneficial owners. The existence of
bearer shares is an additional problem for full identification of the beneficial owners.
Understanding of the concept of enhanced customer due diligence is still limited for a number of
obliged entities, even in respect of politically exposed persons. Some obliged entities indicated
that they would appreciate more guidance from the authorities on AML/CFT concepts although
satisfaction was expressed by the private sector on the technical assistance provided by the FIU on
the completion of STRs.
8
22. Legislative improvements have been made by the Czech authorities in relation to politically
exposed persons (rated NC in the 3rd round MER), which are now defined in the AML/CFT Law.
Senior politicians (who may not be members of parliament), senior government officials and other
important political officials, however, appear still not to be included within the national definition.
23. There is an evident increase in electronic record keeping within financial institutions, and the
“Moneyweb” system (widely used by the larger banking institutions) enables electronic transfer of
records. The Czech authorities indicated the ease with which they can obtain electronic records
(photocopies of IDs, of contracts and account statements) from the domestic banks in response to
foreign international cooperation requests. Nonetheless, in some smaller banks there was some
evidence of paper based systems of record keeping, which could contribute to slight delays in
reconstructing transactions. In addition, there are limitations in the scrutiny, and retention of
information in respect of complex, unusual and large transactions which should be specifically
addressed by the authorities.
24. Improvements have been made in respect of the attention given to business relationships and
transactions with counterparties from countries which do not or insufficiently apply FATF
Recommendations. However, only some of the basic requirements in this respect are implemented
in the AML/CFT Law and to some extent in the banking regulations, and there is an over reliance
on official lists of risky countries. A number of institutions, usually the smaller ones, do not carry
out their own risk assessments in this regard.
25. The requirement to report suspicious transactions is prescribed in Section 18 of the AML/CFT
Law, which provides a list of activities that shall be perceived as suspicious. The Czech
authorities and the representatives of the financial industries indicated that the list is not to be
considered as exhaustive and the circumstances in which a suspicious transaction is to be reported
were not limited to those indicated. However, the fact that the AML/CFT Law contains a list of
suspicious transactions could have a negative impact on the reporting system as the reporting
entities may rely, exclusively or partially, on the listed transactions. It was also noted that the
transactions listed are typical operations which correspond to the activities of the banking sector
but not to the other obliged sectors (i.e. securities and insurance sectors, as well as professionals,
casinos and other DNFBP).
26. Some representatives of the financial institutions and professional organisations advised that they
received little general or case specific feedback from the FIU on STRs.
27. According to the AML/CFT Law, the FIU has overall responsibility to ensure that all obliged
financial and non financial institutions comply with the obligations contained in the AML/CFT
Law. In addition, various authorities and SROs have supervisory responsibilities in their specific
industries. The Czech National Bank (CNB) is responsible for general supervision of the entire
financial market in the Czech Republic. The Czech National Bank includes in on-site general
inspections AML/CFT compliance checks. However, the resources allocated for this purpose by
both the FIU (which began targeted on-site inspections for the first time in the second half of
2010) and the CNB seem to be insufficient for effective supervision and monitoring. The CNB
does not have power to sanction for infringements of the AML/CFT law. This lies exclusively
with the FIU.
28. From discussions with various interlocutors, the low number of findings of sanctionable
infringements in respect of AML/CFT, the lack of any financial sanctions since 2008 and the call
by a number of obliged entities for the issue of guidance in respect of AML/CFT responsibilities,
it appeared to the evaluators that a very light touch risk based supervisory approach is taken
overall in respect of AML/CFT.
9
Preventive Measures – Designated Non-Financial Businesses and Professions (DNFBP)
29. The AML/CFT law explicitly applies to all of the designated non-financial businesses and
professions, which are defined in the FATF Glossary, with the exception of dealers in precious
metals and dealers in precious stones, when they engage in any cash transaction with a customer
equal to or above the applicable designated threshold. The Czech AML/CFT Law also explicitly
mentions as reporting entities the persons licensed to trade in items of cultural heritage, items of
cultural value, or to act as intermediaries in such services.
30. The professional chambers of the lawyers etc. are primarily responsible for AML/CFT supervision
and any sanctioning, though the evaluators were concerned that the professional chambers did not
routinely share the results with the FIU. No ML sanctions had been taken. The FIU has the
possibility to require the professional chambers to conduct inspections and share the results with
the FIU, but this seems to be an exceptional procedure.
31. The supervisory weaknesses identified for the financial sector are also relevant for the DNFPB. In
addition, no Czech authority performs inspections on some DNFBP. Others do not inspect
exclusively AML/CFT and there is a lack of guidance and practical knowledge across the sector.
32. The number of reports from this sector is very low (0.22 % and 0.13 % of STRs in 2008 and
2009). There are also concerns that the DNFBP are not always in a position to identify persons
listed on terrorist lists.
33. The evaluators consider that more formal cooperation agreements need to be instituted by the FIU
and the professional chambers in order to ensure a more coordinated and consistent level of
AML/CFT supervision of these professionals. The AML/CFT risks in the casinos and the real
estate sectors require continuing active AML/CFT supervision and sanctioning.
Legal Persons and Arrangements & Non-Profit Organisations
34. Though there have been improvements in the transparency and ownership structures through
computerisation and acceleration of the company registration procedure, this still does not ensure
an adequate level of reliability of information registered, and on beneficial ownership.
35. While a research project in respect of the NPO sector has been undertaken, there is still not a clear
picture of all the legal entities that perform as NPOs, especially ones of high risk. Equally there
remains insufficient targeted supervision or monitoring of NPOs that control significant portions
of the financial resources of the sector and substantial shares of the sector’s international
activities.
National and International Co-operation
36. Mutual assistance can be provided upon a treaty basis, such as the 1959 European Convention on
Mutual Assistance in Criminal Matters or the 1990 Strasbourg Convention or, in EU relations, the
2000 Convention on Mutual Assistance in Criminal Matters between the Member States of the EU
and also on a reciprocity basis.
37. The Czech Republic has ratified the UN Convention for the Suppression of Financing of terrorism
but has still not ratified the Palermo Convention. Some legislation has been amended in order to
implement the Conventions, but existing legislation does not cover the full scope of these
Conventions. Furthermore, measures still need to be taken in order to properly implement
UNSCRs 1267 and 1373. The full implementation of these Conventions in the Czech Republic
10
legal framework is only possible when criminal liability of legal persons is enforced and when a
definition of “funds” is included in the relevant legislation.
38. The statistics show a good level of cooperation of the Czech FIU with foreign FIUs. However
more detailed data relating, for instance, to the average time and quality of responses would be a
useful instrument to assess effectiveness. Also, efficiency and effectiveness on international
cooperation for Supervisory authorities and the Police is difficult to assess due to the lack of
statistics.
39. Despite the important role played by the FAU to coordinate national competent authorities and to
conduct consultations with the private sector, there are not regular institutionalised mechanisms of
operational coordination, and such mechanisms should be established. Equally it is important, at
the policy level, to create a national mechanism which collectively reviews the effectiveness of
national AML/CFT policies and begins to prepare some agreed performance indicators for the
system as a whole.
Resources and statistics
40. Overall, all supervisors and law enforcement agencies appeared to be adequately structured, and
resourced. However, more resources should be applied for on-site inspections targeted on
AML/CFT issues, both by the Czech National Bank and the FIU.
41. The Police units, responsible for investigating FIU disclosures, are not equipped with sufficient
staff qualified in financial investigation. The lack of education and training in tracing the funds in
major proceeds generating cases limits law enforcement capability.
42. The absence of authoritative statistics to demonstrate effectiveness of implementation of many of
the FATF Recommendations remains a major deficiency.
11
III. MUTUAL EVALUATION REPORT
1.1
GENERAL
1.2
General Information on the Czech Republic
1. As noted in the 3rd round MER, the Czech Republic is a medium size country, with 78,866 sq km
and a total population of slightly more than 10 million inhabitants, located in the centre of Europe.
The Czech Republic is bordered by Slovak Republic, Poland, Austria and Germany within the EU
and has no external EU borders. The Czech Republic joined NATO in 1999 and the European
Union in May 2004.
2. The Czech Republic is usually perceived as one of the most stable and prosperous of the postCommunist states of Central and Eastern Europe. The national currency is the Czech crown
(for the purposes of this report, € 1 = approx CZK 24).
3. There are no significant changes from the situation described in the 3rd round mutual evaluation
report. One important development reported by the Czech authorities is that the economy is no
longer so heavily cash based, and that modern payment techniques have become a regular part of
everyday life of most of the Czech population (usage of credit cards, banking transfers, telephone
banking, internet banking, internet shopping, etc).
4. Although Czech economy was also affected by the global economic crisis of 2008-2009, and a
budget deficit of 5.3% of GDP was estimated for 2010, it continued to show a moderate growth in
the period from 2006-2009, as reflected in the table beneath. However, a significant downturn in
the economy was recorded in 2009.
5. The Czech Republic achieved the status of a developed country, as mentioned by the World Bank
in 2006.
Table 1: Economic indicators
2006
2007
2008
2009
GDP €bn.
GDP
year growth in
%
GDP
per capita €
106 529
130 137
161 413
142 133
6,8
6,1
2,5
-4,2
10 373
12 593
15 484
13 550
Inflation rate %
2,5
2,8
6,3
1,0
Source: Czech National Bank
12
Table 2: Overview of the Czech Republic financial sector in terms of total assets
Assets (€ m)
Structure (%)
2008
2009
166 439
168 503
487
686
15 123
16 255
Pension
companies/funds
7 860
8 851
Investment funds
4 754
4 858
-
-
Monetary financial
institutions
Banks
Credit cooperatives
2008
2009
CC: 19
FC: 81
CC: 18
FC: 82
CC: 21
FC: 45
FB: 34
CC: 21
FC: 46
FB: 33
% of GDP
N° of Institutions
2008
2009
2007
2008
2009
0,1031
0,1185
37
37
39
0, 0003
0,0004
19
17
17
0,0093
0,0114
52
53
52
0,0048
0,0062
10
10
10
0,0029
0,0034
121
145
156
Non-monetary
financial
institutions
Insurers
Leasing
Companies
Brokerage
companies,
management
companies
Others:
investments firms
Total
126
86
139 723
139 312
334 512
338 551
IF: 10
MF: 90
IB: 41
IF: 49
MC: 10
IF: 16
M F:84
-
-
-
-
0,00007
0,00006
19
20
22
0,0865
0,0980
64
61
63
0,2072
0,2381
322
343
359
IB: 40
IF: 51
MC: 9
-
-
-
Source: Czech National Bank CC: Czech controlled; FC: Foreign controlled; FB: Foreign branches IF: Investment funds; MF:
Mutual funds; IB: Investment banks; IF: Investment firms; MC: Management companies with asset management; Leasing
companies: not subject to the supervision of Czech National Bank.
1.3
General Situation of Money Laundering and Financing of Terrorism
6. The situation of money laundering in the Czech Republic is very similar to the situation at the
time of the third evaluation.
7. In the Czech Republic any crime generating profits is a predicate offence for money laundering.
The most frequent proceeds-generating offences are said to be: economic crimes (particularly
fraud, tax evasion, misuse of information in business relations) and all types of criminal activities
carried out in an organised manner (drug trafficking, human trafficking and smuggling). The
main sources of illegal proceeds in the Czech Republic are criminal offences against property and
economic criminal offences, in particular fraud, insurance fraud and credit fraud.
8. The statistical information provided by the Czech authorities in the MEQ indicated that 5 to 11
cases per year of money laundering ended with a final conviction (involving 7 to 16 persons
respectively) in this period. The evaluators tried to establish the types of ML cases being
prosecuted and the overall levels of economic crime and incidence of serious proceeds generating
cases in the Czech Republic during the evaluation and gross economic loss from major proceedsgenerating cases. Some basic figures appear in the report under the discussion of statistics with
regard to Recommendation 3 (para 258 at page 55/56) indicating the following:
13
Table 3: Total damage caused by crimes in the Czech Republic
2005
Total damage caused by
crimes in the Czech
Republic – in €
1,765,220,000
2006
996,366,000
2007
935,587,000
2008
1,298,740,000
2009
1,068,230,000
Year
9. Nonetheless, as the report notes beneath, there is little evidence of significant money laundering
cases being taken forward by the police and prosecution, with a tendency noted in the previous
evaluation to treat money laundering as subsidiary to the other offences rather than being
prosecuted separately.
10. Most STRs forwarded to FAU (Czech Financial Intelligence Unit) seem to refer to tax offences,
which are said to be a particular issue in this jurisdiction.
11. Most frequently STRs are related to banking operations: cash deposits followed by subsequent
withdrawals or transfers to other accounts; transfers from business accounts to private accounts;
transactions without pragmatic or factual economic reason; amounts of transfers do not
correspond to the volume of business activity; sudden large activity on long term passive
accounts (sleeping accounts); transfers of funds abroad in high amounts – mainly to tax havens.
12. Since the 3rd round of mutual evaluation the number of STRs submitted to the FAU decreased
by 41% between 2006 and 2007, but then remained stable in the last three years.
Table 4: Overview of STRs:
2005
3404
2006
3480
2007
2048
2008
2320
2009
2224
I. Q 2010
391
13. The number of cases disseminated to competent authorities increased from 208 in 2005 to 373 in
2009. The increasing trend was almost constant with the exception of year 2007 when the number
of notifications decreased from 216 (in 2006) to 152 (in 2007).
Table 5: Overview of notifications to law enforcement and other governmental authorities:
Police
Tax adm.
Customs
TOTAL
2005
208
NA
NA
208
2006
137
75
4
216
2007
102
46
4
152
2008
78
128
7
213
2009
191
180
2
373
1.Q 2010
73
60
5
138
Criminal proceeds origins
14. As outlined in the conclusions of the 3rd round MER criminal proceeds originate from all types of
criminal activities carried out in an organised manner (drug trafficking, human trafficking;
smuggling) and economic crime, particularly fraud, tax evasion, misuse of information in
business relations).
14
15. Connections between organised crime and ML have appeared mainly in relation to activities of
foreign groups, in particular from the former Soviet Union republics, the Balkan region and Asia.
16. Moreover, the authorities advised that a new phenomenon appeared the last two years in the
Czech Republic, namely phishing, which generates criminal proceeds.
17. As regards terrorism, the authorities state that no such activity has been detected. A few STRs
with suspicion of terrorist financing have been reported though none of them were confirmed.
1.4
Overview of the Financial Sector and Designated Non-Financial Businesses and
Professions (DNFBP)
Financial Sector
18. As at 31 December 2009, the Czech financial system comprised 39 banks, 17 credit cooperatives,
674 insurance companies and intermediaries of which 52 are insurances companies/branches, 166
pension companies and investment funds and 85 brokerage, management and investment firms.
19. The banks remained the most important financial player holding 49.77% of the total financial
assets.
20. The number of financial institutions remained largely stable since the 3rd round MER.
21. The main change since the 3rd round MER is that the Czech National Bank (CNB) is responsible
for general supervision of the entire financial market in the Czech Republic, as the Czech
Securities Commission ceased to exist. Supervision on capital market, insurance companies,
pension funds, investment funds and cooperative savings was delegated to the Supervision
Department of the Czech National Bank (CNB) at the beginning of 2006.
22. The Financial Analytical Unit has a new organisational structure since 1 January 2010: a
Supervision Division was created (in compliance with the recommendation of the 3rd round mutual
evaluation report). This division exercises supervision over all obliged persons (reporting entities)
that are defined explicitly by AML/CFT Law. For this reason, in AML/CFT compliance issues,
CNB is empowered to cooperate with the Czech FIU.
23. In the third round report, the authorities mentioned that the types of financial institutions used for
money laundering were mainly banks, credit unions, insurance companies, and exchange offices,
as well as companies/commercial networks operating international money transfer services. The
use of cash outside the regulated sector was considered also to be a common way to launder
money. The gaming sector and the Casino industry was also vulnerable to money laundering. This
is still considered to be the case.
Designated Non-Financial Businesses and Professions (DNFBP)
24. There are no major changes to the information provided in the 3rd round evaluation report.
25. Section 2 of the AML/CFT Law details the DNFBP that are considered as “obliged entities”.
However, the traders in precious metals and stones are not directly mentioned, falling under the
paragraph 2 (d): “entrepreneurs not listed in para 1, should they receive payments in cash in an
amount of or exceeding EURO 15.000”
15
26. Throughout its provisions the AML/CFT Law refers to “obliged entities” and hence the
obligations imposed by the Act, including requirements under FATF Recommendations 5 – 11 and
Recommendation 17, are applicable to both the financial sector entities and the persons/professions
as listed.
27. The key principles of identification of customers and customer due diligence and for record
keeping apply also for all DNFBP.
28. Some DNFBP (auditors, chartered accountants, licensed executors, tax advisors, lawyers and
public notaries) have a special position in that they have their own professional chambers or
associations.
29. Supervision of casinos, betting games and lotteries is still a part of the Ministry of Finance
(Department of State Supervision on Betting Games and Lotteries).
1.5
Overview of Commercial Laws and Mechanisms Governing Legal Persons and
Arrangements
30. There have been no major changes to the commercial laws and mechanisms, governing legal
persons and arrangements as well as non-profit organisations, since the 3rd round MER.
1.6
Overview of Strategy to Prevent Money Laundering and Terrorist Financing
a.
AML/CFT Strategies and Priorities
31. While, as noted beneath, there has been no formal AML/CFT risk assessment, the Czech
authorities have indicated that their current strategic approach to AML/CFT issues is:
Analysing the strategic framework to ensure compliance with FATF and EU standards: in this
regard, legislating for corporate criminal liability and the consequential accession to
Conventions in which this is included (the Palermo Convention and Warsaw Convention) is
expressed as an objective;
Analysing the national cooperation mechanism to increase the capacity of all domestic
players: in this regard greater encrypted connection links with key players through
“Moneyweb” has been achieved (in respect of major banks for the receipt of STRs between
the FAU and the Unit for Combating Corruption and Financial Crime) and interagency
memoranda on cooperation signed and brought into effect. It is planned to enlarge the number
of banks connected electronically with the FAU and to enlarge the number of governmental
authorities so connected, and to improve cooperation and information exchange with the
Tax Administration and Customs.
Improving cooperation with the private sector, increasing public awareness of AML/CFT and
providing appropriate feedback: in this context the FAU, in cooperation with the CNB, the
Banking Association, other governmental authorities and associations and Chambers of
reporting entities organise regular training for compliance officers and others. The FAU
provides more information on the website of the Ministry of Finance (including annual
reports, description of trends and typologies, as well as information about FATF and
16
MONEYVAL public statements). Plans for the future include more intensive training and
improving the quality of feedback to reporting entities.
b.
The institutional framework for combating money laundering and terrorist financing
32. For a description of the competencies of the major institutions please see the third round report.
The major changes since the adoption of the 3rd round MER are as follows:
Improvement and intensification of cooperation with foreign counterparts and to increase
spontaneous information exchange;
Improvement of the skills of the FAU staff through internal training and awareness-raising by
other collaborators in the AML/CFT field (e.g. supervisors, law enforcement, customs, tax
and other governmental authorities).
33. The Financial Police, which was set up in 2004, by separating the Division of Proceeds of the Unit
for Combating Corruption and Financial Crimes from the Czech Police, was abolished at the end of
2006. The staff of that Unit again became a part of the Unit for Combating Corruption and
Financial Crime of the Czech Police.
34. As noted above, the Czech National Bank (CNB) became responsible for the supervision of the
Capital Market, insurance companies, pension funds, investment funds and cooperative savings,
when the Czech Security Commission ceased to operate.
c.
The approach concerning risk
35. Discussions with the authorities indicated that, like other countries, organised crime groups
remain a continuing and serious risk. The system is therefore operating significantly in white-collar
crime and internet fraud and the proceeds of their crimes are still laundered. However, the
authorities informed the evaluators that there has been no national assessment undertaken of the
overall and specific ML/FT risks in the Czech Republic although they were aware of the main
ML/FT threats arising from organised crime in their country. According to the Czech Republic 3rd
MER, “the Czech Republic would be an important transit centre for the illegal trade and smuggling
with precious stones and metals (and therefore also an interesting place to observe and track these
kinds of activities)”. It is therefore unfortunate that a national assessment was not carried out to
determine the extent of enhanced due diligence that may be required for identified higher ML/FT
risks, such as those relating to precious stones and metals and other potential risks.
36. The evaluators requested information on the overall economic loss or damage from all proceeds
generating offences. Such information as has been provided has been referred to earlier at 1.2 of
this report. The Czech authorities consider the TF risk to be low.
37. The Czech authorities stated that they introduced a Risk-Based Approach (RBA) when the EU 3rd
AML/CFT Directive was being implemented. The authorities state that, in line with the 3rd
Directive, they focus their monitoring activities in particular on those natural and legal persons
trading in goods that are exposed to a relatively high risk of money laundering or terrorist
financing, in accordance with the principle of risk-based supervision. In general, the risk based
approach appears to have remained more or less the same as described in the 3rd MER for the
Czech Republic, although it was refined to take into account concepts included within the Capital
Requirements Directive in terms of the requirement for a Risk Assessment System and Internal
Capital Adequacy Assessment Process.
38. In the absence of a national risk assessment through the involvement of all relevant stakeholders
to determine the overall and specific ML/FT risks in the Czech Republic, it is unclear how, and the
17
degree to which ML/FT risks are integrated in the overall risk-based assessment by the CNB. In
this respect, although ML/FT issues are included within the risk profile to determine the focus of
on-site reviews for operational issues, it still remained unclear whether the most risky
sectors/institutions are being specifically targeted. It appeared that the determination of a risk
based approach to identify the risk of money laundering or terrorist financing (alongside the other
risk assessments) is generally integrated within the CNB's wider supervisory duties, although
specific AML/CFT in-depth assessments are carried out (for credit and insurance institutions)
within the normal supervisory/prudential assessment.
39. The CNB explained that the RBA is implemented to determine their focus of targeted inspections
through the use of specific software based on a number of risk indicators that is supplemented by
expert judgment. Each of a number of individual activities and areas are assigned one of four
grades (From A = "Fully met" to D). The CNB focuses most of its supervisory resources on those
institutions it considers to have the highest levels of risk, which are then rated in terms of overall
risks. The input, by stakeholders other than the FIU (such as law enforcement agencies and
prosecutors) appeared to be absent. During on-site inspections the CNB reviews the
implementation of policies, a sample of transactions, training and control to determine that obliged
entities are adhering to the AML/CFT Law.
40. From discussions with various interlocutors, the absence of findings for sanctionable breaches in
respect of AML/CFT, and the call by a number of obliged entities for the issue of guidance by the
authorities in respect of AML/CFT responsibilities, it appeared to the evaluators that a very light
touch, risk-based supervisory approach is taken overall in respect of AML/CFT. The number of onsite inspections appeared to be low to the evaluators and there does not appear to be a cyclical onsite inspection of risks – this, according to the Czech authorities, is however in line with their view
that a RBA does not necessarily require that all institutions have to be reviewed within a predetermined cycle. Moreover, as at the time of the on-site visit, there appeared to be very limited
risk-based off-site monitoring and analysis of ML/FT risks within obliged entities which would
support on-site work in higher-risk entities.
d.
Progress since the last mutual evaluation
41. The major structural and institutional changes have been outlined above. To implement their
supervisory responsibilities, a Supervisory Division of the FAU was set-up and is operational since
2010.
42. The major progress is on the legislative preventive side with the entry into force of the new
AML/CFT Law in 2008, which was subsequently amended on three further occasions, the last of
which was in 2009 in relation to the adoption of the Rules of the Tax Procedure. Many of the
higher level CDD requirements are now in the AML/CFT legislation.
43. A new Penal Code came into affect in January 2010. While penalties were increased, the issues
raised by the 3rd round evaluation in connection with the criminalisation of money laundering were
not addressed directly in the amendments that have been made to money laundering criminalisation
since the 3rd evaluation.
44. On the legal side, the 3rd round MER had as a recommended action “to continue the efforts aimed
at introducing the liability of legal persons, including for money laundering”. This was also
recommended in respect of criminalisation of terrorist financing. Progress has been slow, though it
is understood that legislation is being brought forward. The recommendation of the 3rd round MER
to ratify the Palermo Convention has still not been fulfilled, because of the lack of corporate
criminal liability. By contrast, the UN Convention for the Suppression of Financing of Terrorism
was ratified and came into force in 2006.
18
45. The number of STRs sent as criminal complaints to law enforcement (including non-ML criminal
infringements) has risen from approximately 4% of STRs in 2005/6/7 to 8.6% of STRs in 2009,
including the copying of its referrals to the Prosecution authorities. It was noted by the evaluators
that the FAU management at the time of the 4th on-site visit was proactively seeking to ensure that
its referrals resulted in action.
46. The evaluation team found a greater engagement by the DNFBP with AML/CFT issues, although
still few reports are made.
19
2. LEGAL SYSTEM AND RELATED INSTITUTIONAL MEASURES
Laws and Regulations
2.1
Criminalisation of Money Laundering (R.1 and R.2)
2.1.1 Description and analysis
47. The criminal anti-money laundering approach in the Czech Republic has traditionally diverged
from the criminalisation standards provided by the Vienna and Palermo Conventions.
48. In the Czech criminal substantive law, it is the criminal offence of “legalisation of proceeds of
crime” (formerly: “legalisation of proceeds of criminal activity” hereinafter: “legalisation offence”)
that was always intended to cover the notion of money laundering as defined by the above
mentioned Conventions. At the time of the 3rd round visit, it was provided by Art. 252a of the
Criminal Code then in force (Law No. 140/1961 Coll.) while the current, (basically and structurally
unchanged) offence can now be found in Art. 216 of the new Criminal Code (Law No. 40/2009
Coll.)
49. Apart from the legalisation offence, the Czech authorities also make reference to some other
provisions of the Criminal Code that are, and have traditionally been, considered to criminalise
some specific aspects of the general concept of money laundering as defined by the Vienna and
Palermo Conventions. In other words, the criminal anti money laundering approach followed in the
Czech Republic still appears to rely on several criminal offences instead of a single, and
comprehensive, money laundering offence. In this respect, as at the time of the 2nd and 3rd rounds
of evaluation, reference was made to the offence of “participation” (podílnictví) in Art. 214 and
215 CC (formerly Art. 251 and 252 CC) as well as “patronisation” in Art. 366 CC (formerly Art.
166 CC), both mentioned as complementing the coverage of the legalisation offence by addressing
some specific aspects of the concept of money laundering.
50. The present evaluators see some contradictions and inconsistency in the concept of “compound”
criminalisation of money laundering. On the one hand, there is the traditional approach of
criminalisation as described by Czech authorities in each previous round of MONEYVAL (or PCR-EV) evaluations, stating that for criminalisation of money laundering, examiners should take not
only the legalisation offence but also the participation and patronisation offences into consideration
and assess them as a whole. The Czech authorities thus consider there is more than one money
laundering offence in the Czech criminal substantive law and whenever the notion of “money
laundering” is mentioned it necessarily comprises, at least, both the legalisation and the
participation offences. On the other hand, the evaluators have found some indications that in the
Czech Republic, it is the legalisation offence (Art. 216 CC) which is considered, in common legal
understanding, as the one and only money laundering offence.
51. As to the latter, the evaluators noted that in the Czech legal terminology, the term “legalisace
výnosů z trestné činnosti” which is actually the title of the legalisation offence in Art. 216 CC
(literally “legalisation of proceeds of crime”) is the term that is generally and almost exclusively
used in Czech legal language to denote the notion of money laundering, to the extent that the term
“legalisation of proceeds of crime” can be considered as the Czech equivalent to the term “money
laundering” (while the expression “praní [špinavých] peněz” literally “laundering of [dirty]
money” is not considered an established criminal legal term as it usually occurs only in literature).
The evaluators also found that in many cases, where there is a reference in a legal text to “money
laundering” i.e. to the legalisation of proceeds of crime, it explicitly and exclusively refers to the
offence in Art. 216 CC. For example, the Czech CPC only refers to the legalisation offence (Art.
412(2) lit i CPC) when implementing the Council Framework Decision 2002/584/JHA on the
20
European Arrest Warrant (where money laundering is one of the offences in relation to which an
EAW must be executed even in the absence of dual criminality). Another example is found in the
statistics on money laundering cases provided by the Czech authorities where the column of money
laundering cases was footnoted in Czech language to specify, with reference to the respective CC
article, that this term only refers to the legalisation offence. As a result, the statistics appear to be
restricted to the legalisation offence and therefore they remain silent on other aspects of money
laundering said to be criminalised by the participation or the patronisation offences. As for the
AML/CFT Law, the situation is even more difficult as it also makes reference to the legalisation2
of proceeds of crime (the title of the offence in Art. 216 CC) but gives a definition of this term that
is entirely different from either of the respective criminal offences in the Czech CC and it is more
in compliance with the general concept of money laundering as defined by the Conventions.
52. The evaluators thus conclude that out of the three criminal offences mentioned by the Czech
authorities, it is the legalisation offence that is actually acknowledged and treated, overall within
the Czech jurisdiction, as “the” unique money laundering offence. As a consequence, the
evaluation report will focus first and foremost on this offence when assessing compliance with R.1
and R.2 and the other offences (participation and patronisation) will only be taken into account to
the extent necessary.
53. At the time of the 3rd round evaluation, there had already been a large variety of criminal
substantive legislation that the evaluators needed to take into account when determining and
analysing the legal base upon which money laundering was criminalised in the Czech Republic.
The 3rd round MER thus examined not only the relevant parts of the Criminal Code in force at that
time, but also the respective articles of the draft Code that had been in Parliament awaiting
adoption. The evaluators learnt that the latter had subsequently been withdrawn and redrafted
before the current Criminal Code was adopted. Examination of the new Code revealed that neither
the legalisation offence nor the other related criminal offences (participation etc.) have
substantially changed, either in terms of their position within the structure of the Special Part or
their general scope of coverage, since the 3rd round evaluation.
Recommendation 1 (rated PC in the 3rd round MER)
54. As far as the material elements covered by the money laundering (legalisation) offence is
concerned, the scope of Art. 216 CC is identical to that of the former Art. 252a CC. According to
this unchanged definition, money laundering can be committed by anyone who “conceals the
origin or otherwise endeavors (or: strives) to substantially aggravate or preclude the ascertainment
of origin” of the thing or other property value being subject of the laundering activity.
55. Since the physical elements of the offence (actus reus) have not changed since the 3rd round, they
remain narrower than the requirements of the Vienna and Palermo Conventions. Article 216 CC
provides as follows:
(1) Who conceals the origin or otherwise endeavours to substantially aggravate or
preclude the ascertainment of origin
a) of a thing or another property value acquired through crime committed in the
Czech Republic or abroad or as a reward for it or
2
The official English version of the AML/CFT Act refers to “legitimisation” and not “legalisation” but the
term used in the Czech original is definitely “legalisace” i.e. legalisation.
21
b) of a thing or another property value provided in exchange of a thing or another
property value as in letter (a)
c) or who enables to another person to commit such an act
shall be punished by imprisonment for up to four years or by a pecuniary penalty or
by prohibition of business or by forfeiture of the thing or another property value;
however, should he/she commit such act in relation to a thing or another property
value originating from a crime, which is subject by law to a moderate sentence,
he/she shall be sentenced by such moderate sentence.
56. As was noted already in the previous report, the legalisation offence had not adopted a systematic
approach and wording similar to that of these international instruments and this is why the Czech
authorities had taken the view that the participation and patronisation offences could be used where
it was impossible to apply the legalisation offence, in a given money laundering case. This general
approach has not changed either, which can also be shown by the fact that the conduct that
establishes the participation and patronisation offences also remains practically the same.
57. As a consequence, the present evaluators associate themselves with the findings and conclusions
drawn by the 3rd round team. Above all, they share the doubts about the actual coverage of the
provision quoted above and particularly in respect of the requirements of the relevant Conventions.
58. The Czech authorities advised, both in the 3rd and 4th round and also in the Progress Report that,
according to the relevant jurisprudence, the first part of the first phrase in the definition of the
legalisation offence (“conceal the origin”) is to be interpreted very broadly so that practically any
illegal activity referring to the offence of money laundering can be subsumed under this general
definition. Specifically in the Progress Report, The Czech authorities made reference to sources of
interpretation according to which “means for concealing the origin of a thing may be a variety of
transfers, perhaps even bogus and repeated, failure to disclose the actual nature of the thing or
other property value, its concealment, failure to disclose disposition and being in possession of a
thing or other property value, failure to disclose or distorting information on ownership or other
rights to a thing or other property value, investing it in a business and so on” which they consider
sufficiently implements all requirements of the Conventions. A similar argumentation was
described more in detail in the 3rd round MER too.
59. The same goes for the presumed applicability of the patronisation offence (a crime that would be
labelled in other jurisdictions as an ordinary “accessory after the fact” type of offence). This
would, in the view of The Czech authorities, also cover the first group of material elements in the
internationally acknowledged definition of money laundering (Criterion 1.1) in as much as the
latter requires that the conversion or transfer of property be punishable if committed, inter alia,
for the purpose of helping any person who is involved in the commission of the predicate crime to
evade the legal consequences thereof. The evaluators were not made aware of any instance where
this provision had been applied in a money laundering case. Indeed, it is considered that this
applicability of this is more theoretical than practical.
60. Patronisation consists of an act that is any act, committed in order to assist the perpetrator of a
criminal offence in order to enable him to escape prosecution or criminal sanctions. This is in fact a
purposive component of the comprehensive definitions of money laundering under the
Conventions. The recurrent argument of The Czech authorities that various domestic offences
would effectively implement and criminalise parts of generic money laundering does not explain
whether and which offences should be applied in concrete cases.
22
61. In any case, there are serious doubts about the completeness of the coverage provided by the
legalisation offence, even together with the patronisation offence.
62. Acquisition, possession or use of laundered proceeds remains missing from Art. 216 CC. The
Czech authorities have always taken the view that these aspects are covered by the closely related
participation offence (Art. 214 CC former Art. 251 CC) which provides as follows:
(1) A person who conceals or transfers to him/herself or to another person or uses
a) a thing or another property value acquired by a criminal offence committed in the
Czech Republic or abroad by another person or as a reward for it or
b) a thing or another property value provided in exchange of a thing or another
property value as in letter (a)
shall be punished by imprisonment for up to four years or by a pecuniary penalty or
by prohibition of business or by forfeiture of the thing or another property value;
however, should he/she commit such act in relation to a thing originating from a
crime, which is subject by law to a moderate sentence, he/she shall be sentenced by
such moderate sentence.
63. Both in the previous and the current participation offences, the concept of use is expressly
addressed while acquisition also appears to be adequately covered by the wording “transfers to
himself”. As for possession it was noted in the previous report and also asserted in the Progress
Report that it would also be covered, implicitly, by the wording “transfers to himself”. On the basis
of an interpretation in the Commentary to the CC The Czech authorities expressed that the term
“possession” is implicitly covered through terms “conceals or transfers to him-/herself or another
or uses”. However, the evaluators are not convinced with this as they have doubts, especially in the
absence of jurisprudence, as to whether passive possession can be fully covered.
64. The 3rd round MER analysed the applicability of the participation offence for the criminalisation
of (these aspects of) money laundering by comparing it to the legalisation offence. They detected
discrepancies between the two and therefore doubted that the Czech Republic could rely on a
combination of these provisions to cover adequately and consistently all the various elements
required by the international standards.
65. The Czech lawmakers have overcome some of these technical discrepancies. Now both the
legalisation and the participation offences both refer to “things and other property value” that are
proceeds of a criminal offence. As a result the two offences are more harmonised.
66. The concerns of the 3rd round examiners about the high level of proof for the mental element of
the legalisation offence have been resolved by legislation. At the time of the previous visit, the
prosecution needed to prove the intent of the criminal “to hide the origin or otherwise seek to
essentially aggravate or disallow identification of the origin of a thing or other asset benefit (…)
with the aim to pretend (or: “to give the impression”) that such asset or financial benefits have
been obtained in compliance with law”. This was likely to lead to a higher burden of proof on the
prosecution side than that required by the international conventions. Now the new Criminal Code
simplified this definition by decreasing the evidential requirements, as recommended by the
previous evaluation team. In the current definition, the previously required purpose (“with the aim
to pretend…” etc.) is removed and hence it is no longer necessary to prove this specific intention of
the perpetrator.
23
67. The 3rd round examiners had noted that the definition of money laundering contained in Art. 1 of
the AML Law then in force was different from that of Art. 252a CC since the former was almost
identical to that provided by the international instruments while the latter was not. The respective
definition can now be found in Art. 3(1) of the AML/CFT Law as follows:
(1) For the purposes of this Act, legitimisation of proceeds of crime shall mean an
activity performed to conceal the illicit origin of proceeds of crime with the
intention to present the illicit proceeds as legal income. The above activity may
particularly be in the form of:
a) conversion or transfer of assets, knowing that such assets come from criminal
proceeds, for the purpose of concealing or disguising the illicit origin of the assets
or to assist a person involved in the commission of a predicate offence to avoid the
legal consequences of such conduct,
b) concealment or disguise of the true nature, source, location, disposition,
movement, rights with respect to, or ownership of assets, knowing that such assets
derive from crime,
c) acquisition, possession, and use or handling of assets knowing that they
originate from crime,
d) criminal association or any other type of association serving the purpose of
conduct stipulated in letters a), b) or c) above.
68. Bearing in mind that practically nothing has since changed in this respect, the evaluators reiterate
the conclusion drawn by the previous evaluation team. Usage of double definitions can lead to
confusion as to what kinds of activities are subject to the reporting obligation and, subject to
criminal prosecution, leaving aside the fact that there are at least two (possibly three) different
criminal offences to correspond with the single ML definition provided by the AML/CFT Law.
The evaluators urge consistency and harmony between the administrative and the criminal
substantive law in this respect.
69. Although the scope of the offence in the former Art. 252a CC had already been extended to cover
“thing or other property benefit” (and not only “thing”) the evaluators in the 3rd round suggested
using an even broader wording so as to clearly include all types of benefits (e.g. “assets”
“proceeds” or “property”.) In accordance with this recommendation, the Czech legislators further
amended the legalisation offence and, at the same time, they provided for more comprehensive
definitions of the respective terms. Thus the legalisation offence (and also the participation
offence) does actually extend to “any type of property” as required by Criterion 1.2. The evaluators
note, however, that completion and enlargement of these terms cannot provide the same result as
could have been achieved by harmonising the administrative and criminal legal definitions of
money laundering also in this respect, primarily by adopting the broad approach of the AML/CFT
Law definition that uses the concept of “proceeds” instead of “thing and other property value”.
The evaluators still find it unclear why the same concepts are not used in both the penal legislation
and the AML/CFT Law.
70. As for the term “thing” in the criminal legal definition, the previous evaluators noted that it was a
narrow concept even in Czech language, normally understood to be a controllable tangible object.
The Criminal Code in force at the time of the 3rd round evaluation only enlarged this concept.
There is still no comprehensive definition of this term in the current Criminal Code. Nevertheless
the evaluators appreciate that Art. 134(1) CC further enlarges its coverage, which now
24
encompasses, among others, money (literally: “pecuniary means”) kept either on a (banking)
account or in securities.
71. While the previous wording of the legalisation offence made reference to “other property benefit”
(jiný majetkový prospěch) the current offence clearly refers to “other property value” (jiná
majetková hodnota) which, as defined by Art. 134 para 2 CC covers property rights as well as any
other value expressible in money terms, provided it is not a “thing” as defined above. As The
Czech authorities explained in the MEQ the term “property rights” is to be understood broadly
including, among others, participation in a limited liability company or cooperative, intellectual
property rights, rights to registered domains, debts, right to a dividend, business secrets, etc. This
interpretation is based on the above mentioned Commentary to the CC which, however, is not
considered a binding source of law but it represents guidance for practitioners.
72. Furthermore, there is still no explicit reference to direct and indirect proceeds from crime and,
considering the continuous lack of relevant court practice that would demonstrate the opinion of
The Czech authorities that indirect proceeds of crime are covered by Art. 216 CC, the uncertainties
noted by evaluators of the previous round remain valid.
73. Criterion 1.2.1 had already been met at the time of the previous evaluation. The previous
examiners had found that no conviction for the underlying predicate offence was required in order
to prove that the assets subject to laundering had been derived from a crime. Additionally, there
was no need to prove what particular crime the proceeds resulted from and who committed the
predicate offence. In addition to that, reference was also made to an annotation in the CPC
explicitly stating that evidence for the commission of a predicate offence did not need to be based
on a preliminary conviction. The situation appears unchanged and therefore the examiners confirm
this criterion as being fully met.
74. The Czech Republic maintained the “all crimes” approach in the criminalisation of money
laundering. The new Art. 216 CC, as with the former Art. 252a, refers to proceeds acquired
through “criminal act” (formerly: “criminal activity” see below) without any further specification.
Furthermore, the Czech criminal legislation provides for criminalisation mechanisms in relation to
each of the 20 “designated categories of offences” in the Glossary annexed to the Methodology, in
line with Criterion 1.3.
75. The previous evaluators noted that the reference in Art. 252a CC to proceeds of “criminal
activity” (as opposed to a “criminal offence” or “crime”) could theoretically exclude proceeds
generated by one or more isolated crimes, instead of a continuous criminal activity. Whether or not
because of this, the Czech lawmakers made a slight change in this part of the offence. The new Art.
216(1) CC no longer refers to proceeds (things or other property value) acquired by “criminal
activity” (trestní činnost) but “crime” or literally “criminal act” (trestný čin) even though the title
of the legalisation offence retained the reference to the former3. As it was pointed out in the MEQ,
“for the purposes of prosecuting and punishing money laundering, any offence that leads to
acquiring things or other property value (creates proceeds of crime) is regarded as a predicate
offence”.
76. As for Criterion 1.5, the last MONEYVAL report reiterated concerns raised in preceding rounds
that the wording of the money laundering (legalisation) offence did not explicitly allow for the
prosecution of money laundering domestically where the predicate offence had been committed
abroad. The general jurisdiction rules did not provide answers to this question. It was therefore
recommended to provide clearly for the possibility to prosecute money laundering under such
3
“Legalisace výnosů z trestné činnosti” literally translates to “legalisation of proceeds of criminal activity”.
25
circumstances. Czech legislators followed this recommendation and filled this gap not only in the
new offence (Art. 216 CC) but also in the participation offence (Art. 214 CC) and now both
expressly refer to predicate crimes “committed in the Czech Republic or abroad”. (This
modification had in fact taken place already in the old Criminal Code by virtue of the Law No.
122/2008 Coll.) This criterion can therefore be considered as met.
77. Furthermore, as was pointed out by Czech authorities in the MEQ, no double criminality principle
applies when assessing the punishability of these foreign predicate offences in the Czech Republic
in line with foreign law. If so, then Criterion 1.5 and the additional element in 1.8 are met.
Nevertheless the evaluators were not made aware of any actual practice supporting this
interpretation.
78. No legislative changes took place as regards the laundering of own proceeds. Both the second and
3rd round evaluation teams had recommended that self-laundering should preferably be explicitly
addressed by criminal substantive law. However, the current evaluators accept the view of The
Czech authorities.
79. As it was explained in the 3rd round MER, self-laundering had in principle been criminalised since
2002. This criminalisation was carried out by Law No. 134/2002 Coll. not by introducing any
explicit provision for this purpose but by deleting the clear reference to “another person” from the
money laundering (legalisation) offence of that time, then provided in Art. 251a CC. As a result, no
money laundering offence has since contained any reference to the perpetrator of the predicate
offence, including the current Art. 216 CC too. Therefore, in the absence of any specific restriction
prescribed by law, the perpetrators of the underlying crime could not be excluded from the
personal scope of the legalisation offence.
80. As a contrast, the participation offence (Art. 214 CC) retained the reference to “another person”
by which it excludes that the perpetrator of the predicate crime be criminally liable also for the
subsequent laundering (participating) activity (“a person who conceals or transfers to him/herself
or to another person or uses a thing or other property value acquired by a criminal offence
committed by another person...”) and the same goes for the patronisation offence, too. Selflaundering is thus provided only to the extent it refers to the physical (material) elements covered
by the legalisation offence in Art. 216 CC and definitely not to those that are supposedly covered
by the participation and patronisation offences.
81. As for Criterion 1.7, the evaluators could not find any notable difference between the Criminal
Code provisions in force at the time of the 3rd round and the respective provisions in the current
Code. Attempt can now be found under Art. 21 CC while various forms of complicity
(accessory ship) including organisation of, instigation to and assistance in committing a crime, in
Art. 24. All these provisions are applicable to the legalisation offence and the other related
offences, too.
82. The provision that renders the preparation for a certain crime a sui generis criminal offence can
now be found under Art. 20 CC. At first sight, the wording of this provision appears different from
that in Art. 7 of the former CC, but it is clear that the content remained practically the same.
Equally, nothing has changed about the scope of this provision as Art. 20 CC, similarly to the
former Art. 7 CC is only applicable to “especially serious crimes” (zvlášť závažný zločin) which
term, as defined by Art. 14(3) CC, encompasses all intentional criminal offences punishable by a
maximum term of imprisonment of at least ten years. This limitation obviously excludes any forms
of the money laundering (legalisation) offence as well as the other related offences which are all
punishable, even in their most serious aggravated forms, with imprisonment up to eight years.
The evaluators note that in the former Criminal Code, the same category was defined, first, by a
range of various criminal offences enumerated in Art. 62 CC and, second, to comprise any other
26
intentional criminal offences punishable by a maximum term of imprisonment of at least eight
years which actually encompassed at least the most serious forms of money laundering (then in
Art. 252a para 3 CC).
83. While most of the ancillary offences listed in Criterion 1.7 such as attempt, association, aiding and
abetting and, to the extent the laundering offence is at least attempted, the facilitating and
counselling appear to be covered by Art. 21 and 24 CC the conspiracy to commit such a criminal
offence definitely falls out of the scope of these provisions as it is only covered by Art. 20 CC on
preparation. For the same reason the previous evaluation team recommended that The Czech
authorities make sure the ancillary offence of conspiracy “covered under Section 7 on preparation”
(now Art. 20 CC) applies in relation to the various elements of money laundering.
84. The evaluators conclude that this deficiency remains unchanged. Even if The Czech authorities
claimed in the last Progress Report that “neither the Strasbourg nor the Vienna Convention requires
criminality of preparation of money laundering” they do require the criminality of conspiracy
thereto and, in the Czech law, it could only have been achieved by punishing the preparation for
such an offence. On the contrary, the Czech lawmakers have raised the threshold in Art. 20 CC to a
level that is too high to include any of the money laundering offences. This is a step backwards,
bearing in mind that the draft Criminal Code the 3rd round evaluators had been provided with
explicitly stated in its Art. 192(5) that preparation for a money laundering (legalisation) offence
shall generally be punishable, i.e., such a preparation would have established a criminal offence
regardless of the maximum punishment applicable for the laundering offence. This paragraph was
subsequently abandoned and now there is no possibility to prosecute for conspiring/ preparing for
a money laundering offence and therefore the Czech Republic can only be partially compliant with
Criterion 1.7.
85. Criterion 2.1 had already been met at the time of the 3rd round evaluation and no changes have
since taken place in this respect. In addition, the 4th round evaluators noted with appreciation that
the Czech criminal law had since gone beyond the minimum knowledge standard of
Recommendation 2 by rendering also the negligent form of money laundering (legalisation) a
criminal offence in Art. 217 CC.
86. At the time of the 3rd round visit, the money laundering committed by negligence had not yet been
covered by Art. 252a CC then in force. If the laundering action had, however, been committed by
negligence, it was only the provision in Art. 252 CC on the negligent form of the participation
offence that could have been used instead, to the extent applicable (considering that the latter did
not cover assets other than a “thing of significant value” and it also explicitly excluded self
laundering). Now the coverage of negligent money laundering (legalisation) is expressly provided
by Art. 217 CC. This offence is only punishable if committed in relation to a thing or other
property value of larger value (at least 50 000 CZK) while the negligent form of participation, now
available in Art. 215 CC, is already applicable to proceeds of significant value (at least 25 000
CZK). Certainly, these limits are unquestionable value thresholds that are not allowed under
Criterion 1.2 nevertheless the evaluators are aware that the criminalisation of negligent money
laundering is beyond the FATF standards and thus its limitations, which may otherwise be
considered reasonable, are irrelevant when assessing compliance.
87. The negligent form of money laundering (legalisation) is clearly different from the intentional
offence (Art. 216 CC) inasmuch as the former does not cover self-laundering, however this
limitation appears quite self-evident. In a situation where laundering takes place by negligence, the
exclusion of own proceeds is fully understandable considering that “should have known” or other
27
similar standards of mental element are necessarily inapplicable for a perpetrator who must know
that the proceeds are derived from his/her own criminal offence.
88. The Czech Criminal Code still does not explicitly provide that the mental element of a criminal
offence (knowledge, intention or purpose) can be inferred from objective factual circumstances.
Nonetheless, the examiners agree with the 3rd round evaluation team in that the possibility of
drawing such inference is acknowledged by the general rules of criminal procedure on the
producing of evidence. Indeed, it was confirmed by domestic interlocutors, and particularly by the
prosecutors the team met on-site, that circumstantial evidence is not only admissible in Czech
criminal procedural law but it is also regularly applied in legal practice. Indeed, it is one of the
basic principles in the CPC (Art. 2 para 6) that “The authorities active in criminal proceedings
evaluate evidence according to their own conviction based on diligent consideration, taking into
account all the circumstances individually and in total.” It can therefore be concluded that the
requirements of Criterion 2.2 are met in the Czech Republic.
89. As regards the criminal liability of legal persons in the Czech Republic, the situation has hardly
changed, if at all, since the previous round of evaluation. The introduction of corporate criminal
liability with adequate and effective sanctioning has been the subject of lengthy debate among
law makers without any tangible result achieved by the time of the 4th round visit.
90. Evaluators of the 3rd round reported on a draft law on the criminal liability of legal persons that
had already been approved by the Government yet turned down by the Parliament in
November 2004 because it had caused, as it was noted in the last Progress Report, fear of misuse of
the legislation for criminal wrong doings and for criminal penalty of business enterprising. It was
also indicated that the responsible Ministries had then agreed on a solution which would introduce
administrative liability of legal entities for proceedings sanctioned on the basis of International
Treaties or the legislation of European Community, including for money laundering, terrorist
financing and other offences to the extent these are provided for in such international instruments.
Government Resolution No. 64, dated 23rd January 2008, prescribed that a draft law be prepared by
the responsible Ministries by the end of the year 2008.
91. While in 2008 there appeared to be an overall agreement that an effective form of administrative
liability of legal persons for money laundering would be introduced, the evaluators of the 4th round
learnt that no legislation upon the basis of the above-mentioned governmental resolution has since
been adopted in the Czech Republic. Furthermore, the legislative trends had apparently changed
again as the team was informed of a completely different draft law to address this issue.
A Draft Law on Criminal Liability of Legal Persons and Procedure against Them had been
elaborated, which was undergoing a commentary procedure at the time of the 4th onsite visit.
According to The Czech authorities, this law, once adopted, will make it possible to punish legal
entities for money laundering offences and thus it will provide for compliance with international
instruments that require corporate criminal liability. The draft legislation would clearly be based on
criminal liability and procedure while the concept of administrative liability of legal entities for
criminal offences appeared to be entirely rejected. Representatives of the Ministry of Justice made
it clear onsite that the draft was complete enough to be submitted to the Parliament in one month.
However, for political reasons, the Ministry had decided not to bring the final draft to the current
Government and hence the draft was likely to be postponed until after upcoming elections.
92. The evaluators learnt from the MEQ that the latest draft would provide for an independent
procedure for legal entities and administrative responsibility of legal entities would not be
precluded while introducing their criminal liability. Sanctions applicable to legal persons would
include a range of punishments from “publication of the final judgment” to prohibition of activity,
pecuniary sanctions or the dissolution of the legal entity.
28
93. All in all, the Czech Republic still fails to regulate any form of corporate liability for the
commission of criminal offences and now there is an urgent need to pass the necessary legal
framework to enable the effective sanctioning of legal persons. Though the current draft was not
made available to the evaluation team in English, and therefore no relevant examination of the
preconditions for either the establishment of corporate liability or the application of various
punishments could be carried out, the evaluators support all governmental efforts in this direction
and encourage acceleration of the adoption of the new legislation.
94. The essential criminal sanctions for money laundering (legalisation of proceeds of crime)
as provided in Art. 216 CC compared with those in the respective offences in force at the time of
the 3rd round visit, are set out beneath.
95. The core offence of money laundering (para 1) carries imprisonment up to 4 years, a pecuniary
penalty, prohibition of business or forfeiture of the thing or another asset value. At the time of the
previous evaluation, the same offence was punishable with imprisonment up to 2 years or a
pecuniary punishment, which was found by the 3rd round examiners to be “quite low” and they
recalled that under the 2001/500/JHA EU Council Framework Decision of 26 June 2001
all European Union member States shall take the necessary steps to ensure that the offence of
money laundering is punishable by deprivation of liberty for a maximum of not less than 4 years.
Since the maximum term of imprisonment was increased up to this level in the new Art. 216(1)
CC, together with the introduction of additional means of punishment, this recommendation
appears fulfilled. On the other hand, the current law contains an additional provision in para 1,
according to which the money laundering (legalisation) is committed in relation to a thing or other
property value originating from a crime for which the law provides a “moderate sentence” that is a
less severe punishment, the money launderer shall also be subject to the latter, more lenient
punishment. In this respect, it is only the range of punishment and not any other characteristic of
the underlying criminal offence which counts. As a consequence, the minimum level of
punishment applicable to money laundering will necessarily be equal to the absolute minimum
punishment applicable to any of the potential predicate crimes in the Criminal Code. This is
contrary to the above mentioned Council Framework Decision but it also lessens the available
money laundering sanctions and hence the dissuasiveness and effectiveness of the sanctions.
96. As for the aggravated cases of money laundering, the punishment can be 6 months to 5 years of
imprisonment or pecuniary penalty if the offender has acquired considerable profit through the
crime either for him/herself or for another person, as well as when the laundering offence is related
to proceeds (a thing or another asset value) of major value (para 2 lit a-b). In this context, both
“considerable” and “major” correspond to the same Czech term namely “větší” (i.e. “greater,
larger”) and hence both terms are defined by a minimum amount of CZK 50,000 in Art. 138 CC.
At the time of the previous evaluation, the first conduct was punishable in almost the same way but
with a slightly higher minimum level of imprisonment (minimum 1 year) and there was no
pecuniary penalty as an alternative.
97. The range of punishment is raised to 2 to 6 years imprisonment or forfeiture of property in case of
further aggravating circumstances under para 3 lit a)-e) as follows:
a) when the offender committed the act as a member of an organised group;
b) in relation to proceeds originating from an especially serious crime;
c) in relation to proceeds of a significant value (at least 500,000 CZK);
d) the offender has acquired a significant benefit (minimum level as above) for him/herself or for
another person; or
e) the offender misuses his/her professional position or function in order to commit the offence.
29
98. At the time of the 3rd round visit, the aggravated cases in lit d)-e) above were formulated similarly
(then in Art. 252a para 3 lit b-c) but carried a more severe punishment (the range was two to eight
years). On the other hand, the case in lit a) above was considered less serious at that time, being
part of the preceding paragraph and thus punishable only within the one to five years’ range.
The case in lit b) was somewhat different in the previous offence, as it not only related to proceeds
of especially serious crimes but those originating from trade in narcotic and psychotropic
substances or from another particularly serious criminal act. On the face of it, this modification
appears to broaden the scope to all serious predicate offences without any further specification. On
the other hand, however, those forms of trade in narcotic and psychotropic substances that are not
considered as “especially serious crime” are, for the sake of inner balance of the CC, left out of the
scope of this provision and thus the new law is more lenient towards these less serious forms of
drugs money laundering.
99. An increased level of severity is provided for in para 4 with its three aggravated cases punishable
with imprisonment from three to eight years. These cases refer back to those in para 3 lit a) and
c)-d) respectively, with some additional factors that make them more serious (proceeds or benefit
of “great” value, that is, minimum 5,000,000 CZK or the involvement of an organised group that is
active in several countries).
100. The previous report underlined that as the Czech authorities also consider the offences of
participation and patronisation to be money laundering offences, a consistent approach would
normally require that the level of punishment would also be harmonised. This appears to be done
in the current Criminal Code as regards the participation offence. In fact, it was already the
amending Law No. 122/2008 Coll. that increased the upper limit for imprisonment applicable for
the basic form of both offences. Furthermore, both the aggravated categories (see Art. 214 para 2
to 4) and the respective levels of punishment appear to be formulated identically to that of the
legalisation offence, including the problematic clause on allowing for a more lenient punishment in
case of a less serious predicate offence. The patronisation offence in Art. 166 of the old CC is more
differently structured and it carries a less severe punishment (maximum 3 years of imprisonment)
also with the possibility for further mitigation in case of a less serious predicate offence.
101. The 3rd round MER found the system of criminal sanctions for money laundering (legalisation)
offence to be not dissuasive enough. Nonetheless, at the time of the 3rd round visit, The Czech
authorities had indicated that the draft new Penal Code would criminalise money laundering with
an increased level of sanctions. The money laundering offence provided in Art. 192 of the draft
law, as quoted in the 3rd round MER, appeared very similar to the one finally adopted in Art. 216
of the new Criminal Code, though the level of punishment for aggravated cases is one of the few
differences. That is, wherever the draft would have provided for a conduct with imprisonment
ranging from two to eight or three to ten years, the maximum levels in the adopted version were
lowered to six and eight years, respectively.
102. As it was explained by the Czech authorities, the increased sanctions were still present in the
latest version of the old CC (as amended by the Law No. 122/2008.) but abandoned in the new
Code as result of conceptual changes in priorities of criminal policy. As a result, the evaluation
team considers that even if the current criminal sanctions in Art. 216 CC appear more
proportionate than those in the former Code (particularly as the range of criminal sanctions has
also been extended with specific reference to forfeiture of a thing or other property value or to ban
on activity) they still lack the necessary dissuasiveness and that will have a negative impact on
their effectiveness too, even if the Czech authorities consider the current ranges of punishment
dissuasive enough. Criterion 2.5 thus cannot be considered as fully met.
30
Statistics and effectiveness issues
103. The first set of statistical information provided by the Czech authorities in the MEQ contained
data on ML/FT investigations, prosecutions and final convictions. The tables did not appear
complete yet they indicated that money laundering was represented in the annual criminal statistics
by 5 to 11 cases ended with a final conviction (involving 7 to 16 convicted persons respectively)
out of 13 to 16 prosecutions (indictments).
Table 6: Investigations, prosecutions and convictions
Investigations
cases
2005
2006
2007
2008
2009
ML
FT
ML
FT
ML
FT
ML
FT
ML
FT
44
1
32
1
32
1
NP
NP
NP
NP
Prosecutions
persons
4
NA
2
NA
1
NA
1
NP
NP
NP
NP
Convictions
(final)
cases
persons
cases
persons
13
0
16
0
10
0
16
NP
15
NP
22
0
35
0
12
0
25
NP
24
NP
6
0
10
0
6
0
5
NP
11
NP
7
0
10
0
7
0
7
NP
16
NP
NA: Not Available; NP: Not Provided.
104. On the face of it, the general number of convictions is not insignificant. From the aspect of the
number of cases, the prosecution/conviction ratio also appears impressive but it looks quite
different when comparison is made between the number of persons indicted with the number of
those convicted. This shows that, in certain years, less than one third of the perpetrators indicted
for money laundering (7 of 25 in 2008) were finally convicted by the court. It needs to be noted at
this point that these statistics only contained information on legalisation (Art. 216 CC) cases when
referring to “money laundering”. No information on other potential ML-related offences was
provided.
105. Other data was available based on FAU statistics on money laundering cases (Art. 216 CC only)
for the entire country and for the period 2005 – 2009 plus the first quarter of 2010. Like the
statistics discussed above, the separate, annual tables were merged for the purposes of this report
but the figures remained the same (as for the judicial proceedings here below, any figures above
zero are bold).
4
Remark of The Czech authorities: “number of persons is not available (NA) because the total may vary as
the investigation progresses”.
31
Table 7: Statistical information on reports received by the FAU and Judicial proceedings
Statistical Information on reports
received by the FAU
notifications
cases
to law
opened
enforcement/
by FAU
prosecutors
year
ML
ML
Judicial proceedings
indictments
Convictions
ML
ML
cases
persons
cases
persons
2005
3404
208
2
2
0
0
2006
3480
137
2
2
1
1
2007
2048
102
0
0
0
0
2008
2320
78
0
0
0
0
2009
2224
191
4
4
0
0
2010
1Q
391
73
0
0
0
0
106. The statistics above cover STR-based criminal cases only. The number of STR-related
indictments and convictions are definitely low, in which respect The Czech authorities underlined
that it does not indicate low effectiveness of the FAU full reports, because many of the cases the
FAU handed over to Police were subsequently investigated and prosecuted as frauds, credit frauds,
investment frauds, tax evasion, misuse of information in business relation or other economic and
financial crimes and not money laundering. The evaluators accept this but they note, first, that the
figures above appear too low to be fully explicable in this way (particularly as regards the
notifications/indictments ratio) and second, that it may question the effectiveness and reliability of
the reporting regime if “many cases” that is, supposedly a considerable proportion of reported
cases prove not to be related to money laundering.
107. The Unit for Combating Corruption and Financial Crime provided separate statistical information
on the outcome of criminal complaints they received from the FAU in 2009. According to that, the
Police opened 175 criminal complaints from the FAU in 2009, of which 52 turned out to be not
related to money laundering but to other crimes and therefore they were forwarded to regional
police bodies. The proportion of such non-ML related complaints (52/175 = 29%) appears to
contradict the above statement, according to which “many” cases were found unrelated to money
laundering and forwarded to other law enforcement bodies.
108. As for the remaining 123 cases, 55 were still being checked at the time of the onsite visit, 37
were merged with or connected to ongoing criminal investigations, while reports on
commencement of steps in criminal proceedings were submitted to the public prosecutor in 31
cases. Interestingly, as far as the 52 non-ML related cases are concerned, this phase of the
procedure was reached in not less than 33 cases which represents a significantly larger proportion
(33/52 = 63% versus 31/123 = 25%) and may indicate that more attention needs to be given to
money laundering cases.
32
109. Out of the 31 ML-related reports, the initiation of a formal investigation and declaration of
suspicion to the defendant took place in 5 cases (against 6 persons). The evaluators were also
informed that in 20 of the above mentioned 31 cases, not only was a report submitted to the
prosecutor but also financial assets on bank accounts were frozen under Art. 79a CPC in the total
amount of 278.407.394 CZK (approximately 11.136.295 €) which is a positive indicator of
effectiveness.
110. Unfortunately, no such statistical figures were provided for the preceding years and therefore this
data cannot be considered as being derived from statistics kept and maintained by an authority. The
evaluators, however, received a third table which was said to be an excerpt from the nationwide
police statistics, including data from all levels of police authorities in the Czech Republic. These
statistics are unique insofar as they actually contain separate information on legalisation and
participation offences. Also they are more helpful than the previous ones, as these are not restricted
to STR-based money laundering cases but, presumably, to any police investigations conducted for
such offences, even though they only provide data regarding the investigative phase of the criminal
proceedings.
111. As to the latter, the evaluators first noted a significant difference between the total numbers of
money laundering investigations and the numbers of persons involved therein, as compared to the
statistics originally provided in the MEQ (the respective figures only rarely matched, for example the number of persons under investigation for ML in 2009) for which the evaluators were given no
explanation. In addition, while these statistics show a trend of increase regarding the number of
persons involved in money laundering investigations (as from the year 2006 to 2009) the original
MEQ statistics contain steady figures in this respect.
112. Another feature of these statistics is that they contain data regarding what proportion of the
respective money laundering and participation cases was under the process of “verification” by the
end of each year, that is, where no formal investigation had yet been initiated. This ratio was very
low in cases of participation offence as 80 to 97 percent of them had already been “clarified” by
the end of the respective time period. As for money laundering (legalisation) cases this ratio was
31 to 53 percent which clearly shows the difference in time consumption required to provide the
necessary evidence and to properly analyse and investigate a money laundering case.
113. The fact that more authorities maintain, to any extent, statistics relevant to the performance of the
criminal anti money laundering regime (numbers of investigations, prosecutions etc.) appears to be
a positive sign and indicator of awareness of this issue but, on the other hand, the occurrence of
notably different figures relating to such basic questions raises serious doubts about the general
reliability of these statistics, about which some representatives of the Police also complained
on-site (mentioning that their statistics cannot reflect the situation if there is more than one charge
in the same case as only one of them will be registered). Furthermore, all statistical tables or
figures the evaluators were given focus primarily on the legalisation offence while hardly any
attention was paid, as discussed above, to other “ML-related” offences (and even in that case, the
respective figures were either incomplete or uninformative).
114. It was a particular deficiency of these statistics that neither of them gave more profound
information on the characteristics of the underlying criminal cases. More specifically, the
following features could not be assessed due to a lack of relevant statistical information:
- the number of police-generated money laundering cases as opposed to those based on STRs
- the underlying predicate offences (at least those occurring more frequently)
- proportion of self-laundering cases and those related to classic third-person money laundering
activity within the whole, etc.
33
115. Beyond the statistics, the examiners could not form a clear picture of the money laundering cases
having been subject, at least, to convictions in the Czech Republic. The information gathered
during the onsite visit implies that most of the cases successfully prosecuted as money laundering
i.e. legalisation of proceeds of crime have been, as at the time of the 3rd round visit, basic cases
involving stolen goods. Specifically, the cases described more in detail in the last report were
related to stolen cars (that is, tangible proceeds being the direct result of a predicate crime) and the
laundering activity subject to prosecution consisted of concealing their origin by changing
identification features (colour, number plates) and/or dismantling them to be sold as spare parts.
Now in this round, The Czech authorities made reference to some successful money laundering
cases of an identical character (stolen cars, modified number plates etc.) or a very similar case the
object of which was a precious painting stolen some 17 years ago and the perpetrator attempted to
legalise it by providing false documents to prove its legitimate origin and ownership. Certainly,
these acts can obviously be subsumed under Art. 216 CC nevertheless, at this point, the evaluators
need to reiterate the conclusion drawn by the previous team: “the spirit of ML provisions in
general, and the reasons why the international community has insisted on the need to criminalise
ML is primarily in order to tackle complex and significant operations that are used to launder
larger amounts of proceeds generated by organised crime and other serious crime-related
activities” and these cases definitely do not belong to this category.
116. In this context, while The Czech authorities have apparently achieved more final convictions for
money laundering, the evaluators have considered the disconnect between the actual,
criminological phenomenon of money laundering in the Czech Republic and the outcome of the
anti-ML criminalisation in terms of numbers and, particularly, the characteristics of convictions.
The information they obtained supported the view that, as in the 3rd round visit, sophisticated
modus operandi are used in the country, including by organised crime groups: conducting of illegal
financial activities, use of businesses to integrate dirty money, use of transactions or operations
involving significant amounts of cash. Organised crime groups remain a continuing and serious
risk and it is noted that they are operating significantly in white-collar crime and internet fraud and
that the proceeds of their crimes are successfully laundered in the Czech Republic. The evaluators
were also made aware of large scale drug crimes involving both trafficking and cultivating of drugs
by mainly foreign (Vietnamese) criminals among whom even the occurrence of a Hawala-like
alternative remittance system was identified.
117. As noted above, the evaluators have requested information on the overall economic loss or
damage from all proceeds generating offences as well as adequate information and statistics upon
which overall conclusions can be drawn as to the quality of the money laundering cases being
brought to the courts. According to the representatives of law enforcement, they had had no
success with ML convictions so far and money laundering had usually been treated as subsidiary to
other offences and subsumed with the predicate offence, rather than being prosecuted separately.
The evaluators were not provided with further statistics showing the proportion of cases which
relate to self laundering and the number of autonomous money laundering cases, particularly
involving the proceeds of organised crime.
118. The Czech authorities explained that they had experienced difficulties in prosecuting more
serious money laundering cases and that this could result in very protracted proceedings. A number
of indictments, for example, had been referred back to the prosecution to provide further evidence,
which implies that the standard of proof required by the courts may be overly high.
119. There was only one criminal case described in detail to the evaluators (a large scale fraud case
committed to detriment of the financial and economic interests of the European Union) which, as
illustrated by excerpts from the original bill of indictment, could definitely be considered to
contain “complex and significant” laundering operations. In this case no one was prosecuted for
autonomous third-person laundering activity (all perpetrators were indicted both for the predicate
34
crime and the related legalisation offence). When asked on-site, neither of The Czech authorities
could recall successfully prosecuting any autonomous money laundering case or those based on
STRs received from financial investigations (the stolen painting case was said to be based on an
STR).
120. In the absence of further information from the country the effectiveness of ML criminalisation
has not been demonstrated. The evaluators associate themselves with the analysis of the previous
team on the possible reasons for the discrepancy between the perceived ML crime situation and the
apparently modest judicial response thereto and reiterate that there is still need to further analyse
the reasons for that.
2.1.2
Recommendations and comments
121. The evaluators remain concerned with the structural basis upon which the current criminalisation
of money laundering has been established within the Czech criminal substantive law. The
“compound criminalisation” as discussed above does not provide for a sound basis that
corresponds to all aspects required by the relevant Conventions.
122. It had already been found by the previous evaluation team that The Czech authorities tend to
oppose any significant redrafting of the ML offence, arguing that the combination of the various
domestic provisions globally satisfies and sometimes exceeds the international requirements and
that a substantial redrafting would interfere with existing and developing judicial practice (see this
argumentation more in detail in the 3rd round MER) and, indeed, the evaluators of the 4th round
also found the same approach.
123. However, the coexistence of legalisation and participation offences is not the only concern about
the criminal anti money laundering regime. As described above, these offences have already been
harmonised to a significant extent and the third group of physical elements in the conventional
money laundering definition is more or less adequately covered by the latter (except for
“possession” which should be provided for clearly) and thus the criminal justice system is, at least
in principle, prepared for prosecuting either of these offences. The main problem is, however, that
the participation offence is not considered, in all aspects, equal to the legalisation offence when it
comes to which offence(s) correspond(s) to the general concept of money laundering, which may
cause ambiguity in international relations as well as inaccuracy in statistics, as mentioned above.
Furthermore, the use of a single ML definition would not appear to be contrary to the Czech legal
tradition as it has already been successfully achieved in the preventive legislation (AML/CFT
Law). This approach, in the view of the evaluators, should be followed in all branches of the Czech
law to avoid inconsistency between the reporting regime and the criminal sanctioning regime.
124. What is more problematic is the legalisation offence itself. Its structure and wording are very
different from the internationally acknowledged concept of money laundering and particularly
from the definition provided by the relevant Conventions. Despite some significant improvements
mentioned above, the basic part of the offence has not changed and thus all doubts about its overall
applicability remained. The general applicability of the respective CC articles could only be really
confirmed by more convincing court practice. All the sources quoted by The Czech authorities to
support their opinion were legal literature (a Commentary to the CC and an article in a scientific
periodical). Thus it remained doubtful whether and to what extent these commentaries are binding
for the courts in a criminal procedure.
125. As a consequence, the evaluators cannot find the coverage of money laundering in the Czech CC
to be sound and consistent. Even if the recent amendments brought some significant improvements
to the legalisation offence in many details, the general situation has not changed fundamentally
since there will still be reliance on the further ML-related criminal offences. The evaluators share
35
the opinion expressed in the previous report, according to which the Czech legislators should
depart from developing and harmonizing the legalisation and, at least, consider the participation
offences simultaneously and adopt the idea of a single money laundering offence, preferably in line
with the definition already existing in the preventive legislation (AML/CFT Law), for example, by
extending the current content of Art. 216 CC to the extent required by the Conventions.
126. The main negative consequences of the current approach were adequately summarised by the
3rd round evaluation report with which the evaluators associate themselves:
- the inconsistencies regarding the definition of the offence (between first of all Art. 216 and
214 CC) go against a coherent treatment of the criminal phenomenon of money laundering,
- the fragmented approach may lead to the dilution of the money laundering concept and, hence,
the respective offences, including Art. 216 CC are individually closer to the classical offence
of receiving of stolen property
- the court practice, as described to the evaluators during the on-site visit, illustrates that the
legalisation offence has still mostly been applied to criminal offences which had more to do
stolen goods (receiving, trafficking, selling) than with the classical laundering of profits
obtained through criminal activity.
127. It is therefore recommended:
•
•
•
•
•
•
2.1.3
to amend Art. 216 CC so as to cover explicitly the various elements of the international
requirements on the concept of money laundering now apparently missing from the
definition (first and foremost: the conversion and transfer of property, the possession of
property, the various specific aspects of concealment and disguise and the explicit
coverage of the two main purposive elements required by the conventional definitions)
preferably by harmonising the money laundering definitions of the administrative
(preventive) and criminal substantive law;
to make sure, either by legislation or by achieving relevant judicial practice, that the
money laundering offence(s) cover both direct and indirect proceeds from crime;
to provide for the criminalisation of conspiracy to commit all types of money
laundering, preferably by prescribing explicitly in the CC that preparation for the
legalisation offence (which by virtue of Art. 20 CC also comprises conspiracy) is also
punishable, as had already been formulated in the previous draft of the Criminal Code;
to consider increasing the criminal sanctions applicable to the legalisation offence and
other ML-related offences;
to provide for the criminal liability of legal persons, including for ML;
and, finally, to further analyse the reasons for the apparent discrepancy between the
money laundering phenomenon in the Czech Republic and the type of legalisation or
participation cases so far concluded successfully, both in terms of differences in the
underlying predicate criminality and the typologies of the related laundering activities,
and take further appropriate initiatives to counter this phenomenon.
Compliance with Recommendations 1 & 2
Rating
R.1
PC
Summary of factors underlying rating
• The criminalisation mechanism still needs to be brought in line with the
international requirements prescribed by the relevant Conventions
particularly with regards to:
the conversion and transfer of property
36
R.2
Rating
the possession of property
and all aspects of concealment and disguise need to be
explicitly provided
• The conspiracy to commit all types of money laundering is not covered by
criminalisation;
• There is insufficient evidence of effective implementation.
PC
• No corporate criminal liability has been established;
• The sanctioning regime is not sufficiently dissuasive and effective and
therefore the level of punishment needs to be increased.
2.2
Criminalisation of Terrorist Financing (SR.II )
2.2.1
Description and analysis
Special Recommendation II (rated PC in the 3rd round MER)
128. The evaluators of the previous round were firm in their recommendation that financing of
terrorism should be introduced in Czech criminal substantive law as a stand-alone offence, that is,
to abandon its subordinated position to the offence of “terrorist attack” and to provide for a
separate offence broad and detailed enough to better cover, besides the financing of terrorist acts,
also the financing of terrorist organisations and individual terrorists. It was however indicated
already in the same report that The Czech authorities had not considered that the creation of a
specific offence would lead to improvements in practice or to an increase in the number of cases
prosecuted. Consequently, no changes were foreseen in the then drafted new Criminal Code either.
Indeed, it was evident in the 4th round that the Czech lawmakers failed to follow the
recommendation. In the new Criminal Code, the offence of terrorist attack, as provided in Art. 311,
is practically identical, both in its structure and, to a large extent, also in its wording to the
respective offence in Art. 95 of the previous Code. This also refers to the location and function of
the terrorist financing offence which remained to be discussed in one of the subparagraphs within
the same article (para 2 lit b of Art. 311).
129. With no changes in the general approach, The Czech authorities now referred to Art. 311(2)b of
the new CC as the main provision covering terrorist financing. According to that, a person is
punishable “who supports such conduct (that is, the conduct of terrorist attack mentioned in para 1)
a terrorist or any member of a terrorist organisation financially, materially or in another way”.
130. Before entering into discussion on the act of terrorist financing, one must have a closer look at
paragraph 1 to determine what is considered to constitute a “terrorist attack” that is, a terrorist act
pursuant to the Czech criminal legislation. As far as the general definition of terrorist act in
Art. 2(1) b of the International Convention for the Suppression of the Financing of Terrorism is
concerned, this appears adequately covered by Art. 311(1)a CC, together with the preamble of the
same article. As to the compliance with Art. 2(1)a of the said Convention, the examiners of the
3rd round had noted in their report that the lengthy list of offences contained in paragraph 1 of
Art. 95 CC then in force did broadly cover the various situations addressed in the specific
UN terrorist conventions and it is also clear that Art. 311(1) of the current CC literally reiterates
Art. 95(1) of the former Code. Nonetheless the current evaluators found a number of conducts that
appeared not to be covered as terrorist attack and, hence, their support could not be qualified as
terrorist financing.
37
131. Specifically, no parts of the offence of terrorist attack (Art. 311 CC) provide for the
criminalisation of acts described in Art. 7 of the Convention on the Physical Protection of Nuclear
Material (1980) in relation to the general notion of “nuclear material” and not only “nuclear
weapon” to which reference is made in Art. 311(1)f CC and, particularly, whether the theft or
robbery of nuclear material or an embezzlement or fraudulent obtaining thereof is covered.
Equally, Art. 2(a) and (b) of the Protocol for the Suppression of Unlawful Acts against the Safety
of Fixed Platforms located on the Continental Shelf (1988) (“seizes or exercises control over a
fixed platform by force or threat thereof or any other form of intimidation… performs an act of
violence against a person on board a fixed platform if that act is likely to endanger its safety…”)
is not covered by Art. 311(1)c which only refers to destroying and damaging of such objects.
132. Turning now to the financing offence in Art. 311(2)b CC it first needs to be noted that this was
indeed one of those parts of the criminal legislation that had actually undergone some significant
development since the previous round of evaluation, in apparent accordance with the
recommendations made in the 3rd round MER.
133. At the time of the 3rd round evaluation, only the financing of a terrorist act had clearly been
covered by Section 95(2)b of the Criminal Code then in force (“…who provides financial, material
or other support to such conduct”) with no explicit coverage of financing of terrorist organisations
and individual terrorists. In this respect, the 3rd round MER quoted The Czech authorities of that
time, who considered that the combination of the financing offence with general or other
provisions and, above all, the former Art. 163a CC on “participation in a criminal conspiracy”
would allow extending the scope of the criminalisation mechanism towards the financing of a
terrorist organisation, particularly as Art. 163a(3) CC explicitly provided for a linkage with Section
95.
134. This approach was not compromised by the recent development of the Czech criminal legislation,
which, (as quoted above), made the new Art. 311(2) lit b) CC encompass the supporting of a
terrorist or any member of a terrorist organisation but not the support provided to the terrorist
organisation itself. Instead of that, the new CC retained a criminal offence similar, or almost
identical, to the former Art. 163a, which is now the offence of “participation in an organised crime
group” in Art. 361 CC (in the original, the name is slightly different). In line with this section,
anyone “who founds an organised crime group, who participates in activities of an organised
crime group or who supports an organised crime group shall be punished by imprisonment of 2 to
10 years or forfeiture of property” (para 1). Committing such offence in connection of an
organised crime group aimed to commit, among others, the offence of terrorist attack (Art. 311)
shall be punished by imprisonment of 3 to 12 years or forfeiture of property (para 2) while the
leaders or representatives of such a group are threatened with imprisonment for a term of five to
fifteen years. The evaluators note that the definition of “organised crime group” (Art. 129 CC) is
literally the same as that of “criminal conspiracy” in Art. 89(17) of the former CC as quoted in
footnote 47 of the 3rd round MER.
135. As a result, the Czech criminal substantive law continued to target the financing of a terrorist act
as well as a terrorist organisation in the same way as it did at the time of the 3rd round visit. As far
as the third option, that is, the financing of an individual terrorist, is concerned, the situation has,
however, substantially changed by the amendment of Art. 311(2)b CC which now covers the
financial, material or other support provided to “a terrorist or any member of a terrorist
organisation”.
136. At this point, it needs to be noted that Criterion II.1 lit a(iii) uses the term “individual terrorist” as
opposed to a terrorist organisation in lit a(ii) and thus the former comprises any terrorist being a
natural person regardless of whether or not he/she belongs to any organised group and therefore the
terminology used in Art. 311(2)b CC, which draws a distinction being members of terrorist
38
organisations and “independent” terrorists, appears rather redundant. This notwithstanding, the
development achieved by this provision is welcome but, on the other hand, concerns may arise
about the actual applicability of the new rules, considering that neither the Criminal Code nor any
other piece of legislation the evaluators are aware of appear to provide any definition of the terms
“terrorist” and “terrorist organisation” (as opposed to the definition of “organised crime group”
above).
137. It perhaps needs no explanation that these terms are unavoidably indefinite and, for this reason,
practitioners will necessarily require appropriate guidance as to what makes someone a “terrorist”
in the context of Art. 311 CC i.e. what needs to be proved to establish such a qualification. Czech
authorities stated in the MEQ that “terms as ‘terrorist’, ‘terrorist group’, ‘terrorist organisation’
and ‘terrorist financing’ are interpreted by legal professionals and practice of the courts while
respecting international obligations” As for the the term “terrorist group” reference was made to
the above cited Commentary to the Criminal Code which defines this term as a “structured
association of more than two people that exist for a longer time and which acts in accord to
commit acts of terrorism”. However, no such reference was made as regards the definition of an
individual terrorist. Certainly, the Glossary to the FATF Methodology does provide a definition for
this term but without any, even implicit, references in this respect, the evaluators consider it very
unlikely that the new legislation or legal practice is, to any extent, based on that. In the absence of
proper guidance, the latest extension of Art. 311(2)b CC appears to serve the purpose of formal
compliance with SR.II rather than providing a more powerful weapon for the fight against the
financing of terrorism.
138. As a final remark related to the topic of individual terrorists and terrorist organisations, the
evaluators should note that they are unclear why the offences in Art. 311(2), that is, not only the
support provided to, but also the threat of, a terrorist act were excluded from the scope of the
aggravated cases under para 3. More specifically, terrorist acts as defined by para 1 are threatened
with a more severe punishment if committed, among others, as a member of an organised group
(para 3a) but this does not apply to the acts specified by para 2. As a result, the financing of
terrorism would not be punished more severely if committed by a member of an organised group,
which appears to be a loophole in the criminal legislation. This deficiency can only indirectly and
partially be remedied by Art. 42(o) CC that declares it an aggravating circumstance if the offender
“committed the crime as its organiser, a member of an organised group or a member of a
conspiracy”.
139. In the 3rd round MER, the examiners considered that Art. 95(2)b and Art. 163a then in force (the
present-day Art. 311(2)b and Art. 361 CC respectively) were not “very eloquent” and therefore it
was hard to say to what extent the collection of funds (by any means, directly or indirectly) was
included in Czech legislation. Evaluators of the 4th round, having thoroughly examined the
legislative background available, have come to the same opinion concerning the actus reus of these
offences.
140. Criterion II.1 lit a) requires that both core activities of terrorist financing, that is, “provision” and
“collection” of funds be covered by criminal legislation. These are two distinct activities, in which
context “collection” means the raising of funds including legitimate assets with a view to
forwarding them to the recipients. Strictly speaking, neither the term “supports (…) financially,
materially or any other way” (as in Art. 311(2)b) nor the simple “supports” (as in Art. 361)
appears to cover the mere collection of means.
141. The 3rd round MER cited the opposite opinion of the authoritative Czech legal literature (the 2004
Commentary to the CC) according to which the term “supports by any other means” simply means
any support that is relevant and, hence, includes without doubt support in the form of organizing
the collection of funds, in which case the supporter himself does not provide his financial support.
39
At this point, explicit reference was made to Art. 10(1)c CC then in force (now it is Art. 24(1)c
CC) claiming that the concept of assistance (including “procuring of means”) applies to support
under Art. 95(2)b CC (now Art. 311(2)b CC) as well.
142. Evaluators of the 4th round examined the respective article of the current CC (an English
translation was provided onsite) and were not convinced by the above interpretation. Art. 24 deals
with the issue of participation in a criminal offence and it defines various forms of this
participation in para 1 as follows: the organiser (lit a) the instigator (lit b) and the assistant (lit c).
As for the latter, it is “a person who intentionally granted another person assistance in committing
a criminal offence, particularly by providing the means for committing such criminal offence,
removing obstacles, enticing a victim to the scene of the crime, guarding during the offence is
committed, giving advice, strengthening the person’s intent or promising assistance after the
commission of a criminal offence”. This definition contains no reference to “procuring of means”
but to “providing of means” which is something completely different and, indeed, it corroborates
the findings of the 4th round evaluation team. The accuracy of the latter translation could also be
verified; the key expression in the original is “opatřením prostředků” which corresponds to “(by)
provision of means” where “opatření’ means “provision” considering that the same term is used in
the very same sense in the money laundering offence in Art. 216(1)b too5.
143. Bearing all this in mind, the evaluators are not convinced that the Criminal Code provides for an
offence of terrorist financing in the form of collection of funds with the unlawful intention that
they should be used, or in the knowledge that they are to be used, according to Criterion II.1 lit a(i)
to a(iii) particularly as the team do not find the above mentioned Commentary authoritative enough
for such a broad or almost praeter legem interpretation that has never been tested in practice.
144. Subsequent to the on-site visit, The Czech authorities expressed their view that a person who
collects financial means for the purpose of supporting terrorism would be punishable for
preparation of terrorist attack pursuant to Art. 20 CC. According to the latter, conduct which
consists in intentionally creating conditions for committing an especially serious offence especially
by, among others, the acquisition or adaptation of means or tools for the purpose of committing
such a crime shall be considered as preparation thereof, if the Criminal Code stipulates so in the
relevant provision and if such a criminal offence is not attempted or committed. In line with this,
Art. 311(4) CC explicitly provides that the preparation for the offence of terrorist attack (including
the offence of supporting in para 2b) is punishable.
145. In the absence of any case law or other sources of guidance it cannot be anticipated whether the
Czech judicial practice would actually accept that the simple gathering of financial means with a
view to support a terrorist or a terrorist act would, in itself, establish the sui generis preparation for
the respective criminal offence, but even if it did so, it is likely to be sanctioned less severely than
a completed criminal offence despite the same range of punishment. What is more, this potential
solution cannot be applied when it comes to the financing of a terrorist organisation under Art. 361
CC which, due to the level of maximum punishment, is to be considered an “especially serious
offence” pursuant to Art. 14(3) CC but the Criminal Code does not stipulate specifically that
preparation of this offence be punishable.
146. As far as provision of funds is concerned, the broad definition of “support” remains to cover
financial, material or any other kind of support also in Art. 311(2)b of the new CC similar to the
respective provision in the former Code. As was already noted in the previous report, this broad
approach is in line with Criterion II.1b. The offence in Art. 361 CC, however, only refers to the
5
In which case “provided in exchange of a thing or another asset value” stands for “opatřena za věc nebo
jinou majetkovou hodnotu”.
40
general notion of “support”. The reasons for and the effects of this difference remained unclear. It
is very likely that the Czech lawmakers had simply failed to harmonise the two offences in this
regard but now one cannot tell with certainty the coverage of “support” in these offences. One
could argue that the simple and general notion of “support” in Art. 361 CC may be even broader
than that in Art. 311(2)b because of the specification attached to the latter. On the other hand, the
concept of “support” in Art. 311(2)b is explicitly enlarged so as to encompass any kind of
supporting activity, as it was discussed more in details in the previous report. As it was confirmed
by The Czech authorities, both “support financially, materially or in any other way” in Art. 311(2)b
CC and “support” in Art. 361 CC practically have the same coverage.
147. As with the legislation in force at the time of the 3rd round, the Czech Criminal Code does not
specify that terrorist financing offences should extend to both direct and indirect forms of support
and neither is it provided explicitly whether the source of the financial means comprise both
legitimate and illegitimate origin. In this respect, The Czech authorities had previously argued that
there was no need to make such a differentiation because what is decisive is the existence of
support and not its form or source. They had also added that it was not customary in Czech
legislation to use the wording “directly or indirectly” or “in full or in part”, the absence of which in
the entire Criminal Code had not yet caused any problem and, if the legislator had wanted to limit
the scope of the provision, it would have been said explicitly.
148. The reasons why the 3rd round evaluation team could not agree with the above argumentation
remain applicable. Evaluators of the 4th round thus associate themselves with the statements and
conclusions made in the previous report and add further arguments thereto. That is, the thorough
examination of the current Criminal Code does not support the argument that expressions such as
“directly or indirectly” etc. are unknown in the Czech criminal law. Instead, such specification
does indeed exist in the CC, even if it not formulated identically to the terminology of the FATF
Methodology. Picking up just one example from the body of legislation being subject to the present
evaluation, one can find both “even if not directly” (i.e. directly or indirectly) and “at least
partially” (i.e. fully or partially) in one single article of the Criminal Code (Art. 101(2) CC), either
of which could have been applied in the terrorist financing offence too.
149. The Criminal Code does not provide a definition for “funds” and thus it cannot be known
whether this term would be interpreted according to the UN Terrorist Financing Convention.
It appears that such a definition is left to the courts to interpret, once they come across any case
related to the financing of terrorism.
150. Equally, there is still no explicit reference, even in the new CC offence, to the requirement under
Criterion II.1c, that it should not be necessary that funds were actually used to carry out terrorist
acts or be linked to a specific terrorist act. Firstly, this is of particular importance as regards the
financing of a terrorist act. The evaluators of the previous round questioned the wording used in
Art. 95(2)b of the former CC for suggesting that there must be a close link between the financing
act and the committing of a concrete terrorist act. (The wording of the respective provision remains
the same in the new Art. 311(2)b.) Such a clear provision would put beyond doubt that financing of
terrorist organisations or individual terrorists does actually extend to the funding of their day-today activities or, as far as organisations are concerned, their recruitment or training activities.
151. As for the coverage of attempted terrorist financing as well as the range of ancillary offences, the
respective provisions do not appear to have changed during the drafting of the new Criminal Code
and hence all conclusions drawn by the previous team of evaluators in this respect remain valid.
An attempt to commit a criminal offence is now covered under Art. 21 CC and it is applicable for
any intentional criminal offence including those by which terrorist financing is criminalised.
Preparation for a criminal offence, as discussed more in detail above, is covered by Art. 20 and
includes a broad range of ancillary offences including, among many others, conspiracy to commit a
41
crime as well. Art. 24 CC covers participation in committing a crime (where para 1 deals with the
organisers, para 2 with instigators and para 3 with assistants thereof). All in all, the requirements
prescribed by Criterion II.1d and II.1e are met.
152. As a result of the “all crimes approach” the Czech Republic adopted, both the financing of a
terrorist act, a terrorist or member of a terrorist organisation (Art. 311(2)b CC) and supporting
(financing) of a terrorist organisation (Art. 361 CC) are in principle predicate offences for money
laundering. To date, no occurrence of laundering activities involving assets either resulting from or
intended for terrorist financing have ever been reported.
153. Turning to Criterion II.3, the evaluators note that Art. 7 to 9 CC almost literally reiterate the
respective provisions contained by the former CC in Art. 19 to 20a. These articles cover the scope
of applicability of the Czech criminal substantive law with respect to the principle of universality,
in the same way as the respective provisions were discussed in detail in the 3rd round MER.
Evaluators of the present round associate themselves with the analysis carried out and the
conclusions drawn by the 3rd round evaluation team in this respect, adding that the rules governing
criminal jurisdiction based on the international treaty obligation in Art. 9 (then Art. 20a) CC must
also be taken into account with regard to the ratification of the UN Terrorist Financing Convention.
154. In addition to that, the evaluators found that Art. 313 CC, as with Art. 95(4) of the previous
Code, extends the protection provided in Art. 311 CC to foreign states as well. The evaluators,
sharing the opinion of the 3rd round evaluation team, appreciate that this provision usefully
complements the primary goal of Art. 311 which is to protect the interests of the Czech Republic
and international organisations, as well as specified interests of the international community. The
scope of all these provisions is broad enough to cover, at least in principle, the requirements of
Criterion II.3.
155. As for Criterion II.4 on the applicability of Criteria 2.2 to 2.5 the findings and conclusions of the
3rd round MER remain valid since there have been no changes as to the underlying facts and data
either. Because of this, there is no need for any detailed re-assessment in the 4th round.
156. The only relevant difference in this respect is that the range of punishments that can be imposed
for terrorist financing was somewhat increased in case of supporting a terrorist organisation (a
criminal organisation aimed to commit the offence of terrorist attack) which is now sanctioned
with imprisonment of 3 to 12 years (as opposed to 3 to 10 years) or forfeiture of property. As a
consequence, the examiners, like those carrying out the previous evaluation, found the level of
sanctions generally adequate.
157. Since there has not yet been a criminal case brought to court in the Czech Republic for any
offence related to terrorist financing, and apparently no formal criminal proceedings have been
initiated either on this basis, there is no concrete practice, as was the situation at the time of the
previous evaluation.
158. Notwithstanding the general lack of positive information so far that could be kept in form of
statistical figures, the evaluators note that the in the criminal statistics made available to them,
whenever reference was made to terrorist financing it necessarily meant the offence in Art. 311(2)b
and never the other offence in Art. 361. It is therefore very likely that any occurrence of the
financing of terrorist organisations in the Czech criminal practice will not be reflected in the
statistics as it would only make up the figure related to the generic notion of “participation in an
organised crime group”.
42
Effectiveness and efficiency
159. Since there have been no formal criminal investigations or convictions, for any forms of terrorist
financing, it is difficult to assess the effectiveness and efficiency of the implementation of SR.II in
the Czech Republic.
160. The offences by which the financing of terrorism is criminalised in the Criminal Code do not
fully reflect the SR.II requirements, since the mere collection of funds with a view to providing
them appears not to be covered (in case of financing of terrorist organisations, not even by the
application of the general rules of preparation). Corporate criminal liability is not yet provided for
and, furthermore, the definition of “funds” is lacking and is open to court interpretation. The lack
of full compliance of the CC to international standards might have an impact on the effectiveness.
161. The abovementioned deficiencies may limit or adversely affect the capacity to investigate,
prosecute and convict terrorist financing offenders and they might also prevent the Czech Republic
from providing certain forms of international co-operation where dual criminality is required as
well as possibly having a consequential impact on the reporting of suspicious transactions related
to terrorism, for the reason discussed above in relation to R.32.
2.2.2
Recommendation and Comments
162. The evaluators welcome the progress the Czech Republic has achieved since the previous round
of evaluations in building up a more complete legal framework for the criminalisation of terrorist
financing. Apart from the clear provision dealing with the financing of terrorist acts and the
separate (though adequate) criminalised financing of terrorist organisations, the criminal legislation
succeeded in introducing the offence of financing an individual terrorist. The latter development in
positive law eliminates the situation described in the last report as leaving “extensive room for
interpretation and theoretical combinations to comply with the international requirements with
several elements that are not covered, or not covered explicitly enough”.
163. Nonetheless, the evaluators share the opinion expressed in the previous report that a stand-alone
provision on financing of terrorism would be preferable to cover explicitly the various elements of
the international requirements in a more consistent way. This particularly refers to the disharmony
between the offences in Art. 311(2)b and Art. 361 CC. Specifically, there is discrepancy between
the wording and, probably, the contents of “support” as defined by the respective articles.
Furthermore, the sui generis criminalisation of perpetration only applies to the offence in Art.
311(2)b CC.
164. The evaluators thus reiterate the recommendation to introduce the financing of terrorism as a
stand-alone offence that would be broad and detailed enough to encompass all aspects of terrorist
financing, particularly:
- to clearly cover the various elements required by SR.II, and above all, the collection of
funds by any means, directly or indirectly, and their use in full or in part for FT purposes;
- to provide explicitly that, in order to be criminally liable, it is not necessary that funds
were actually used to carry out terrorist acts or be linked to a specific terrorist act;
- and, subject to the introduction of corporate liability, to provide for the liability of legal
persons for terrorist financing.
165. In this respect it needs to be noted that the AML/CFT Law contains a separate definition for
terrorist financing in Art. 3(2) as follows:
(2) Financing of terrorism shall mean:
43
a)
gathering or providing financial or other assets knowing that such assets will be, in full or in
part, used to commit a crime of terror, terrorist attack, or a criminal activity intending to
facilitate or support such crime, or to support an individual or a group of individuals
planning such crime, or
b)
acting with the intention to pay benefits or compensation to a person who had committed an
act of terror, terrorist attack, or a crime intended to facilitate or support such crime, or to
an individual close to such person as stipulated by the Criminal Code; or collecting assets to
pay such benefits or compensation.
166. Similarly to the money laundering definition in Art. 3(1) of the AML/CFT Law, this definition is
significantly more in line with the relevant international standards. At this point, the evaluators
reiterate their opinion expressed above in relation to R.1 on the ultimate importance of having
consistent treatment of a given case throughout the processing chain, from the reporting to, and
analysis by the FAU to the possible prosecution and final conviction and they urge for establishing
consistency and harmony between the administrative and the criminal substantive law in this
respect. This particularly refers to the involvement of the criminal offence of terror (Art. 312 CC)
in the range of the offences, the financing of which constitutes terrorist financing because this act
is definitely out of the scope of the offence in Art. 311(2)b. The evaluators learnt that the offence
in Art. 312 CC criminalises “assassination” i.e. murder with the intent to undermine the
constitutional order of the Czech Republic which appears not relevant in the context of SR.II.
Nevertheless, the team was not given any convincing explanation for the discrepancy between the
coverage of the preventive and criminal legislation in this respect.
167. In addition to that, there is a need for a clear definition of “funds” being subject of terrorist
financing, in line with the definition provided by the UN Terrorist Financing Convention.
2.2.3
SR.II
Compliance with Special Recommendation II and Recommendation 32
Rating
PC
• The offence of terrorist attack does not adequately cover the acts
described in Art. 7 of the Convention on the Physical Protection of
Nuclear Material (1980) and Art. 2(a-b) of the Protocol for the
Suppression of Unlawful Acts against the Safety of Fixed Platforms
located on the Continental Shelf (1988);
• The collection of funds, as one of the core activities within the concept
of terrorist financing under SR.II is not adequately, if at all,
criminalised;
• Apart from that, different provisions that criminalise FT are not
adequately harmonised ;
• There is still no explicit coverage of direct or indirect collection of
funds/usage in full or in part;
• There is no explicit indication that offence is prosecutable without the
funds being used or linked to a specific terrorist act;
• There is no corporate criminal liability.
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2.3
Confiscation, Freezing and Seizing of Proceeds of Crime (R.3)
2.3.1
168. The general regime on confiscation and provisional measures, and particularly the basic
mechanisms of confiscation, has not changed structurally since the previous round of evaluation.
Certain important amendments have nevertheless been carried out, mostly in line with
recommendations made in the 3rd round MONEYVAL report.
169. In the Czech criminal substantive law, all forms of confiscation6 are to be considered as
punishments as it is so prescribed by Art. 52(1) lit d) and f) of the new Criminal Code. Within
Chapter V part 2 of the CC (“Punishments”) the forfeiture of property is regulated in detail under
Art. 66 CC, while Articles 70 to 72 CC refer to the confiscation of a thing or other property value
as well as substitute value. All these various measures remain conviction-based and besides these,
Art. 101-102 CC provide for a system of non-conviction based confiscation of a thing, other
property value or substitute value. As opposed to the other measures mentioned above, the nonconviction based confiscation is not considered a punishment but a final protective measure
(Chapter V part 3 CC).
170. Finally, the evaluators simply note that when assessing compliance with Recommendation 3 the
main issue, according to Criterion 3.1, is that laws should provide for the confiscation of property
(i) that has been laundered, and (ii) of property which constitutes proceeds from, (iii)
instrumentalities used in and (iv) instrumentalities intended for use in the commission of any ML,
TF or other predicate offences. Forfeiture of property under Art. 66 CC has as the main purpose of
“punishing the offender” as it is specified in para 2 of the same article. In other words, this kind of
confiscation is rather of a punitive than a reparative character where the property subject to
deprivation is not, or needs not to be, in any concrete relationship with the criminal offence the
defendant has committed. This contrasts with the forfeiture of property on a non conviction based
basis.
Forfeiture of Property
Section 66
(1) Owing to the circumstances of the committed criminal offence and the offender’s
personal situation, the court may order forfeiture of his property, if the offender has
been sentenced to an unsuspended term of imprisonment for a premeditated criminal
offence by which the offender acquired, or attempted to acquire, a property benefit.
6
In various legal texts provided in English translation to the evaluators, both “confiscation” and “forfeiture”
are alternatively used yet both are equivalents of the same Czech original “propadnutí”. Wherever
“confiscation” or “forfeiture” is used in this report, these terms are thus to be considered as synonyms, both
denoting an authoritative action that consists of permanent and definite deprivation of property.
However, non-conviction based confiscation under Art. 101-102 CC is designated in the Czech original by
the term “zabrání” that is, “taking away” or “seizure” and so it was translated in the third report as well (in
relation to Art. 73 CC then in force). Maintaining this terminology in the 4th round report would have caused
confusion as the term “seizure” is frequently used in the English version of CPC to denote the temporary
taking away of property items with a view on their confiscation. The Czech word the CPC uses for this
provisional measure is “zajištění” that can be (and is actually) translated as either “seizure” or “securing” in
English. For the sake of consistency, wherever the term “seizure” is used in this report it will necessarily
refer to the provisional measures set out in CPC (zajištění) while the non-conviction based confiscation
(zabrání) will be referred to as “confiscation”.
45
(2) The court may only impose forfeiture of property without the conditions under
par. 1 being met if the Special Part of this Code permits imposition of such
punishment; forfeiture of property may be imposed as a sole sentence if, because of
the nature of the criminal offence and the person of the offender, imposition of
another punishment is not considered necessary for achieving the purpose of
punishing the offender.
(3) Forfeiture of property shall apply to the entire property of the convicted
offender, or only to a part of his property as determined by the court; forfeiture shall
not apply to means or things that are required for satisfying the wants of the
offender or persons whose maintenance or upbringing is the offender’s duty under
statutory provisions. (…)
171. Certainly, one of the preconditions is that the offender be convicted for a premeditated criminal
offence by which he/she has acquired or attempted to acquire a property benefit. Nonetheless, the
property subject to forfeiture does not need to originate from or, more precisely, constitute
proceeds (property benefit) of this criminal offence, bearing in mind that even an attempted
acquirement of property benefit can be sufficient for the application of this punishment. This
measure thus serves the most effective sanctioning of the defendant, taking into consideration both
his/her personal situation and the circumstances of the committed criminal offence (the same
aspects that need to be considered when meting out, for example, a pecuniary punishment pursuant
to Art. 67-68 CC) but without even an implicit reference to the confiscation of any of the various
elements contained under Criterion 3.1 as listed above. As a consequence, this report will focus on
other parts of the confiscation and provisional measures regime when assessing compliance with
R3.
172. The key provision in this respect is Art. 70 CC on the forfeiture of a thing or other property value,
according to which:
(1) The court may impose forfeiture of a thing or other property value which
a) was used to commit a criminal offence,
b) was determined to be used to commit a criminal offence,
c) the offender acquired by his criminal offence, or as a reward for such a
criminal offence, or
d) the offender at least partly acquired for another thing or other property
value stipulated under c), unless the value of the thing or other property
value under c) is negligible in relation to the thing or other property value
acquired.
173. At the time of the 3rd round evaluation, the respective provision then in force (Art. 55 CC) only
dealt with the limited scope of forfeiture of a “thing” but the concept was extended in 2006 to also
cover “other property value”. Now, in addition to that, Art. 134 CC helpfully provides a broad
definition for both terms according to which the concept of “thing” (para 1) encompasses not only
controllable forces of nature, live animals or processed separate parts of the human body but also
money (literally “pecuniary means”) kept in a bank account and in securities. The definition of
“other property value” (para 2) covers property rights as well as any other value expressible in
money, provided it is not a “thing” in the sense of para 1. The notion of “property rights” as it is
defined by the above mentioned Commentary to the CC was explained in the Czech replies to the
MEQ to extend to comprise, among others, participation in a limited liability company or
cooperative, intellectual property rights, rights to registered domains, debts, right to a dividend,
46
business secrets, etc. which makes the scope of Art. 70 CC fully in line with the definition of
“property” in the Glossary attached to the FATF Methodology.
174. Art. 70(1) lit a)-b) CC clearly covers property which constitutes instrumentalities used, or
intended for use, in the commission of any criminal offence, including all offences by which
money laundering and terrorist financing is criminalised by Czech law. The confiscation of
proceeds of crime is likewise covered by para 1 lit c)-d) of the same article. On the face of it, the
latter provisions are apparently restricted to property deriving, either directly or indirectly, from the
criminal offence the offender he/she has committed (“his criminal offence”). This however proved
to be a mistranslation as the examination of para 1 lit c) in the Czech original showed that this
provision only refers to property the offender acquired by criminal offence (“kterou pachatel získal
trestným činem”) without any possessive pronoun attached. Having said that, the broad wording of
all these provisions gives the appearance that they are actually in line with Criterion 3.1 lit a) to c)
but they do not show compliance with the same Criterion as regards the confiscation of property
that has been laundered.
175. The wording of Criterion 3.1 leaves no doubt that confiscation of property “that has been
laundered” is a separate issue in the context of R.3 clearly distinguished from the proceeds and
instrumentalities. According to the Methodology, the term “proceeds” denotes property that is
derived from or obtained through the commission of an offence, where the latter necessarily means
a predicate offence and not the actual money laundering offence. The property that has been
laundered would normally be derived from a respective predicate crime and hence it would only
constitute the object (but not proceeds) of the laundering activity, which particularly refers to
“classic” third-person money laundering cases. The Czech confiscation regime is obviously
capable of targeting criminal proceeds the offender gained by a criminal offence (Art. 70(1)c) but
the applicability of this provision is rather doubtful in an autonomous money laundering case
where proceeds of the predicate offence are not “gained” but simply received and, once “cleaned”
or legalised, returned by the launderer (and the payment or percentage the latter is given for his/her
action could only be considered as proceeds “gained by” money laundering).
176. The Czech authorities advised that property that has been laundered could either be confiscated
as instrumentalities to the laundering offence (as thing or other property value intended or used to
commit a criminal act) or, alternatively, as proceeds of the underlying predicate offence, even if the
latter is not prosecuted together with the money laundering offence. Neither of these options is
however clearly set out in positive law and they have not yet been confirmed by the court either.
177. Confiscation from third parties was deficient at the time of the 3rd round evaluation and, on the
face of it, the key provision in Art. 70 CC also did not assist with the requirement for third party
confiscation under Criterion 3.1.1 lit b. That is because confiscation of a thing or other property
value is restricted to the property that belongs to the perpetrator of the criminal offence. As it is
specified by Art. 70(2) CC similar to the former Art. 55(2) “The court may order forfeiture of a
thing or other property value only if such thing or other property value belongs to the offender”. In
this context, the 2006 amendments of the CC introduced the concept of possession or control
instead of the strict ownership standard and in line with this, Art. 135 CC gives a broad definition
for the expression “thing or other property value belonging to the perpetrator” referring not only to
property items or rights being in his/her ownership but also to those he/she actually has and
disposes of as if he/she was the factual owner:
“Thing or other property value belongs to offender if, at the time of the decision
about it, he/she owns it, it is the part of his/her property or he/she actually disposes
of it as its proprietor or owner, without the rightful proprietor, owner or holder of
such thing or other property value being known.”
47
178. On the basis of this definition, the Court may confiscate a thing or other property value that is
only possessed, or disposed of, by the perpetrator, regardless of the respective ownership rights
thereon (that is, whether or not the perpetrator is the legitimate owner of the property item or
right). Confiscation of instrumentalities or proceeds of crime however remained excluded under
Art. 70 CC once these are transferred to another person (e.g. to hide or protect them). Certainly,
one could also interpret such a transfer as a “disposal” in the sense of Art. 135 CC (the perpetrator
proceeds as if he had the right of disposal over the thing or other property value and this proves
that the thing etc. belongs to him) which appears to give some possibility for confiscating property
from third persons who acquired the disposed property. It is however unclear to the evaluators
whether this interpretation has ever been argued in practice or applied in any concrete case.
Furthermore, the need to prove not only that the property kept by a third person is proceeds of
crime but also that he/she acquired it as a result of the perpetrator’s purposeful action of “disposal”
would definitely put an additional burden on prosecutorial and police bodies.
179. Instead of pursuing this approach, the Czech legislators succeeded in establishing the potential
for third party confiscation in a different part of the Criminal Code, separately from the structure of
Art. 70 CC. It was one of the helpful novelties introduced by the latest amendment to the Criminal
Code that the scope of non-conviction based confiscation in Art. 101-102 CC became enlarged so
as to cover confiscation of proceeds beyond the personal scope of Art. 70 CC.
180. The first part of Art. 101(1) CC remained unchanged as it provides, similar to the corresponding
Art. 73(1) in the previous Code, for the confiscation (literally “taking away”) of a thing or other
property value that could otherwise have been subject to confiscation under Art. 70 CC as proceeds
or instrument of a criminal offence but the offender, to whom it belongs, cannot be prosecuted or
sentenced (e.g. because of insanity or statutory bar) or he/she was discharged by the court. Nonconviction based confiscation may also take place if it is necessary due to safety of people or
property, or due to another similar common interest.
181. The new aspect of this non-conviction based confiscation can be found in Art. 101(2), which
introduced a new dimension of third party confiscation into the Czech criminal law. According to
this, the court may also confiscate a thing or other property value that constitutes, even if not
directly, proceeds of a criminal offence and particularly:
a) if it was gained by a criminal offence or as a reward thereof and it does not belong to the
perpetrator;
b) if it was acquired by another person than the perpetrator, at least partially, for a thing or
property value that was gained by a criminal offence or as a reward thereof; or
c) if it was acquired by another person, at least partially, for a thing or property value the
perpetrator had acquired, at least partially, for a thing or other property value that had been
gained by a criminal offence or as a reward thereof unless the value of the thing or other
property value under b) and c) is negligible in relation to the thing or other property value
acquired These rules above are undoubtedly sufficient to provide for the confiscation of
criminal proceeds from third persons pursuant to Criterion 3.1.1 lit b. (Although Art.
101(2) lit a] does not contain a direct reference to the property item or right being
“acquired by another person” it is understood to cover any situations where the thing or
property value is not in the possession of the perpetrator, including the case it is actually
possessed or owned by a third person.) It is also welcomed that both Art. 70(1) lit d) and
Art. 101(2) lit b)-c) clearly encompass proceeds commingled with legitimate assets by
providing guidance as to how to understand the partially illicit character of such property.
182. In relation to Criterion 3.1.1 lit a) the Czech Criminal Code still makes no further distinction
between direct and indirect proceeds in which context, similar to the situation at the time of the 3rd
round evaluation, it particularly does not contain any clear reference to assets deriving from
48
criminal proceeds such as income, profits or other benefits (interests, deposits made after the
freezing of an account, increase of value of shares etc.) This apparent deficiency is surprising as
the concept has already been covered, as it will be discussed below, by criminal procedural law–
(see Art. 79a para 1-2 as amended and also Art. 347-348 CPC) which clearly encompass indirect
benefits from assets and assets acquired after the application of temporary measures. This logic
was not apparent in criminal substantive law and thus it remains unclear to them whether, if at all,
indirect proceeds of crime are fully covered by the confiscation regime. The basically punitive
character of the measure in Art. 70 CC may give an explanation why it is targeted to such an extent
at the perpetrator and not at the criminal assets themselves. There may be the same reason behind
the fact that confiscation of a thing or other property value remained entirely discretionary. Even if
the conditions in Art. 70(1) CC are met, it is left to the broad discretion of the Court whether or not
this measure is applied, especially since it can constitute an alternative measure to imprisonment,
which gives less strength to the confiscation regime. Czech authorities explained that the recent
court practice considers forfeiture of a thing or other property compulsory in cases where the
perpetrator possesses the thing prima facie unlawfully or in contradiction to any legal act (an
unauthorised firearm, counterfeit money, etc.) but this principle cannot be applied to proceeds of
crime in general and particularly not for legitimate assets intended to finance terrorism.
183. Confiscation of a thing or other property value can only be applied as a sole punishment in case
of less serious offences where the CC permits imposition of this punishment and if, in view of
nature of the committed criminal offence and the possibility of rehabilitating the offender, no other
punishment is considered necessary (Art. 72 CC). In any other cases the Court may, according to
Art. 53(1) CC, impose it as an additional sanction, together with any other kinds of punishment
provided by the Criminal Code. For the basic money laundering offence in Art. 216(1) CC
confiscation of a thing or other property value can be applied as a sole punishment (as an
alternative to imprisonment, pecuniary penalty or prohibition of business) while it can only be
applied as an additional punishment, by virtue of the general provisions mentioned above, in any
aggravated cases of ML and all offences that criminalise terrorist financing. As mentioned above,
confiscation is purely discretionary in all these cases which, as it was already pointed out by the 3rd
round evaluators, is not in direct contradiction with R.3 but from a criminal policy standpoint and
with a view to target the proceeds of crime and terrorist financing, it could have been preferable to
put certain limits to the courts’ discretion.
184. At the time of the 3rd round evaluation, the property of corresponding value could not be
confiscated under Czech legislation and national authorities indicated that in case the original
property had been destroyed, damaged etc. the usual court practice would be to impose a pecuniary
punishment instead of confiscation. Examiners of that time did not fully disagree with this
argument yet pointed out that the maximum level of pecuniary punishment (5,000,000 CZK then
167,000 €) sets a rather moderate limit to the potential impact on a criminal patrimony in the
context of major cases.
185. The subsequent amendment of the Czech criminal legislation adequately filled this gap by
explicitly providing for the confiscation of substitute value in Art. 71 of the new Criminal Code.
This measure is applicable if the perpetrator destroys or damages, alienates, renders worthless or
unusable, consumes or disposes of a thing or other property value that could have been subject to
confiscation under Art. 70 CC or otherwise frustrates their confiscation. In such cases the Court
may order the confiscation of the substitute value up to the amount that corresponds to the value of
such things or other assets, as it is determined by the Court upon the base of professional
observations and expert opinion. Furthermore, in case the property item in question had even
partially been destroyed, damaged or depreciated the Court pursuant to Art. 71(2) CC may also
order the confiscation of substitute value in addition to the confiscation of the property item itself.
While the substitute value itself must obviously be expressed in a sum of money, The Czech
49
authorities emphasised in the MEQ that the confiscation of substitute value may in practice
comprise any property owned by the perpetrator and hence it is possible to confiscate any of
his/her property items (up to the equivalent value) instead of money.
186. Art. 102 CC provides for a similar regime in relation to non-conviction based confiscation in case
the person, to whom the thing or other property value subject to deprivation belongs, destroys,
damages etc. the same or otherwise frustrates its confiscation (Art. 70) or non-conviction based
confiscation (Art. 101). No actual court practice in either respect was made known to the
evaluators.
187. Provisional measures are still regulated basically by the same two sets of provisions of the Code
of Criminal Procedure as at the time of the 3rd round evaluation, that is, Art. 347-348 CPC that
deals with securing the assets of an accused with a view to the confiscation of his/her property and
the securing measures in Sections 78-79 CC and the subsequent articles. While the former
remained practically unchanged, the latter set of procedural rules has been significantly amended
and completed since the previous round.
188. Starting with Articles 347 and 348 CPC these are meant to secure the execution of a final
decision on forfeiture of property pursuant to Art. 66 CC. As it was discussed above, the latter
punishment cannot be considered as being within the scope of Recommendation 3 and,
consequently, the same must be said about the provisional measures that are explicitly formulated
to secure property assets solely for the purpose of a subsequent forfeiture of property (“imposition
of a sentence of forfeiture of property can be expected, and there are concerns that enforcement of
this sentence will be obstructed or hampered” in Art. 347[1] CPC). Because of that, Art. 347-348
CPC will not be examined and analysed in detail in of this report. Nonetheless anything that was
said about these in the 3rd round MONEYVAL report remains valid as neither of these provisions
have changed since the time of the previous evaluation.
189. Similar to the situation at the time of the 3rd round evaluation, the provisional measures in Art.
78-79 CPC and the subsequent articles are meant to secure things or other property items or rights,
which have been used to, or intended to use for, the commission of a criminal offence
(instrumentalities) or which constitute proceeds of crime. As such, these are to serve and secure the
execution of a final decision imposing confiscation of a thing or other property value (Art. 70 CC)
non-conviction based confiscation of the same (Art. 101 CC) and confiscation of substitute value
(Art. 71 and 102 CC respectively). Currently there exist the following measures which enable to
seize property in these respects:
- delivering and seizure of a thing – Art. 78-79 CPC (actually related to “things” i.e. movable
property items)
- judicial seizure of funds in an account at a bank or in other financial institutions as well as the
safeguarding of immaterialised securities (Art. 79a to 79c CPC)
- seizure of immovable assets (Art. 79d CPC);
- seizure of other property value (Art. 79e CPC);
- and seizure of substitute value (Art. 79f CPC).
190. The purpose of securing the instrumentalities and proceeds of criminal activity and, hence, the
scope of applicability of the respective measure is covered in the provisions in Art. 79a to 79e
CPC. As far as instrumentalities are concerned, the terminology of CPC adequately follows that of
the CC (Art. 70(1) lit a-b CC) but, on the other hand, it makes reference to “proceeds of crime” as
such, without defining the content of this term. The Czech authorities nonetheless advised that,
according to the established interpretation of the law, the notion of “proceeds of crime” is to be
deduced from Art. 70(1) lit c)-d) CC that includes not only things or other property values gained
50
by a criminal offence, but also those that have been obtained, even partially, for things or property
values gained by a criminal offence or as a reward thereof. It is a further issue, however, that Art.
78 and 79 CC (seizure of a thing) only extend to things “important for the criminal proceedings”
but the evaluators accept the explanation given by host authorities that this general term is
necessary to encompass not only the (intended) instruments and proceeds of a criminal offence but
also other items that constitute evidence in the criminal proceedings.
191. The provisions regulating the seizure of a thing (Art. 78-79 CPC) or other types of account kept
by different financial institutions (Art. 79b) and the seizure of booked securities (Art. 79c) have not
changed since the previous round of evaluation, apart from the extension of Art. 79a to cover
indirect assets (as discussed below). Notwithstanding this, the evaluators were not informed on any
further changes relevant to the interpretation of these provisional measures nor judicial practice
that would have an impact on their applicability. That said, the evaluators of the 4th round associate
themselves with the findings and statements made by the previous team in this respect.
192. At the time of the 3rd round evaluation, temporary measures could not apply to immovable
property and to rights and financial participations/shares in a legal entity. These issues are now
addressed in the current CPC in which specific provisions governing the seizure of immovable
assets (Art. 79d) and that of other property value (Art. 79e) were introduced to helpfully
complement the existing system in areas that had not (adequately) been addressed before.
193. It should be noted that both these measures and those regulated by Art. 79d to 79f CPC are to be
applied by the public prosecutor. The fact that the Czech law does not require a court order or any
judicial approval for such measures to be taken in the investigative phase is a factor that may
effectively support their immediate applicability. Equally, in the pre-trial phase of the procedure,
the same law authorises the Police to decide on the application of such measures in urgent cases
that cannot be delayed (provided there is a subsequent approval from the public prosecutor) which
also assists in ensuring swift the effectiveness of the action. This also refers to measures related to
the securing of financial means on bank and other accounts in which respect, interestingly, the
domestic authorities did not appear satisfied with the opportunities provided by the CPC based
regime, instead of which both the law enforcement and prosecutorial authorities supported the
involvement of the FAU and the freezing mechanism provided by the AML Law as discussed
below.
194. Until 1 July 2006 it was not possible to seize interests from pecuniary values on bank accounts
pursuant to Art. 79a as these were not considered as proceeds of crime. This restriction has been
elevated by the latest amendment of CPC (Art. 253/2006.) as a result of which Art. 79a also
explicitly deals with indirect benefits from assets and assets acquired after the application of
temporary measures as follows (the amended part is underlined)
“If the circumstances found indicate that the financial means on the bank account are
intended for committing a criminal activity, or have been used to commit a criminal
activity, or result as an income from a criminal activity, the presiding judge, and/or the
public prosecutor or police authority in the preliminary proceedings, may decide on
securing the financial means on a bank account and eventually also financial means
additionally credited to the bank account, in case this is covered by the purpose of
securing. Such securing includes also additions (…)”
Equally, Art. 79a(2) was amended accordingly (underlining as above)
“The decision (…) must be delivered to the bank which conducts the account and after
the moment the bank has secured the account, to the account holder, too. The decision
shall mention the bankers, including the account number and bank code, as well as the
51
amount in the respective currency, to which the restriction applies. The decision on
securing applies to financial means, that were on the bank account at the time the
bank received the decision, up to the value as stated in the decision on securing
including additions. If the value stated in the decision is higher than the bank balance,
the securing applies also to financial means additional deposited to the bank account
up to the value of the decision, included additions. (…)”
195. By virtue of the connecting clauses in Art. 79b and 79c(4) CPC the above mentioned extension
automatically refers to the provisions dealing with seizure of financial means kept on other types of
accounts as well as seizure of booked securities.
196. As for Criterion 3.3 according to which the initial application of temporary measures should be
made without prior notice to the person subject to those measures, the 3rd round examiners had
been concerned by the logic of provisional measures under Art. 78 and 79 CPC and concluded that
these may need to be amended so as to enable the application of temporary measures without prior
notification of the suspect. In respect of these Articles, the evaluation team found that the
statements made in the previous report remained valid to date because the responsibility for the
application of measures still appears to lie primarily with the person (even a suspect) possessing an
object that is necessary for the purposes of criminal proceedings, mainly because of references to
the “call” of the competent authorities upon which the person is obliged to present the respective
item. Czech authorities stated in both rounds of MONEYVAL evaluations that the procedure under
Art. 78-79 involves in reality measures applied on-site and hence without delay and possibility for
the offender to evade the consequences of the procedure. In this context the “call” is but a chance
given to the person to co-operate voluntarily but measures can be applied mandatorily and
immediately in case of refusal.
197. Certainly, this is a possible and indeed very positive way for the application of these provisions
but the law itself allows for a different interpretation too. The main question is whether there can
be a time gap between communicating the call to the person and applying coercive measures in
case of non-co-operation. Quick action is particularly important in the preliminary stage of
criminal proceedings when the person concerned is still likely not to be either aware of, or
prepared for provisional measures. Art. 79(1) CPC does not allow the Police to order the seizure of
a thing unless they obtain a prior consent of the public prosecutor, which requirement can only be
disregarded, pursuant to para 3 of the same article, if such a prior consent “cannot be achieved and
the act must be performed immediately”. Since the latter situation is clearly formulated as an
exceptional case as compared to para 1, one can conclude that in normal cases, where the Police
needs to obtain a prior prosecutorial consent, the law does not require the act of seizure to be
performed “immediately” and thus there might be a time gap between the “call” and the execution
of that measure.
198. Subsequent to the on-site visit, the evaluators were however advised by The Czech authorities
that the respective CPC articles are generally interpreted so as to exclude such potential problems.
In cases the non-cooperation of the affected person can be foreseen, the Police usually obtain the
prosecutor’s consent before, or even during the time when the “call” is communicated to the person
so that the provisional measure can be taken immediately. Representatives of the law enforcement
added that application for such a prosecutorial consent may even be made by phone (provided that
it will subsequently be documented in a written report) and confirmed that application of these
measures has never posed such problems in practice.
199. Provisional measures other than seizure of a thing are beyond doubt applicable ex parte that is,
without any prior notification to the party involved. Article 79a CPC on the judicial seizure of a
bank account provides in its para 2 that such a decision must first be delivered to the bank keeping
the account and only after the bank has secured the account can the decision be delivered to the
52
holder of the account. As a result of cross-references to Art. 79a a similar procedure applies for the
securing of other financial means under Art. 78b and also for the seizure of booked securities under
Art. 79c. Turning to Art. 79d on securing of immovable assets and Art. 79e on other property
value, these do not specify such an order of delivery as above, nevertheless they both imply that no
prior notification takes place when applying these measures: first, as they do not require any sort of
a previous “call” towards the affected person (like Art. 78-79 CPC) and second, because both Art.
79d(2) and Art. 79e(2) the law refers to informative obligations the affected person has to meet
subsequent to the notification of the authoritative decision.
200. The ability and powers of law enforcement and prosecutorial authorities to identify and trace
property subject to possible confiscation (Criterion 3.4) has not changed much since the previous
round of evaluation. The mainly “open” sources to which police forces have access, on their own
initiative and at an early stage of the proceedings, remained the same. Czech authorities however
added that the range of these sources will be restricted as from 2011 because the police will no
longer be entitled to ask information from tax proceedings for the purposes of detecting and
explaining money laundering (only the public prosecutor or the court will have the possibility to
demand such information). Further sources of information remained accessible, in the pre-trial
proceedings, to the prosecutor only (including banking information, even without a court order).
In addition, the prosecutor or, in the trial phase, the chairing judge upon request of the prosecutor
may order bank account surveillance or surveillance of an account of a person authorised to
register investment tools for up to a prolongable period of 6 months. Equally, law enforcement
authorities while discovering and explaining money laundering offences may apply a range of
special investigative measures such as interception and recording of telecommunication operations,
use of intelligence means and technology, monitoring of persons and things etc. all specified by
CPC.
201. The criminal procedural rules are helpfully complemented by those of the preventive legislation.
Art. 20(1) of the AML/CFT Law (No. 253/2008 Coll.) obliges service providers, as a general rule,
to suspend the execution of a transaction order if there is “a danger that an immediate execution of
a transaction would hamper or substantially impede securing of proceeds of crime or money
intended to finance terrorism”. In such cases the obliged entity may only execute the transaction
not earlier than 24 hours after the FAU had received the STR thereof (which shall also indicate that
the transaction had been suspended). Suspended transactions are then examined by the FAU and if
it requires a longer period of time, the FAU shall, pursuant to Art. 20(3) decide either to prolong
the period of suspension of the transaction for a maximum of 72 hours after having received the
STR (para 3a) or to suspend the transaction or to freeze the assets in such transaction for 72 hours
in the obliged entity where the assets are located (para 3b). The decision is binding upon its
declaration and it is not subject to appeal as the only party to the proceedings is the obliged entity
that disclosed the suspicious transaction or holds the assets believed to be involved in such
transaction. If the FAU finds facts suggesting that a crime had been committed, it lodges a criminal
complaint to the Police or other competent law enforcement authority in the 24h or 72h period
stipulated in Article 1 or 3 respectively. From the time the criminal complaint is filed, the law
enforcement authority has 3 calendar days to decide, pursuant to the Criminal Procedure Code, on
the seizure of the financial means subject to the transaction or else the obliged entity shall perform
the transaction.
202. Turning back to the criminal procedural law, the provisional measures are not limited to the
assets of the offender and thus it is possible to secure things and property value owned or held both
by charged person and other persons, regardless of the real ownership. Concerning the protection
of rights of bona fide third parties (Criterion 3.5) the CPC articles that deal with temporary
measures, as was the situation at the time of the previous visit, do not contain any restriction in this
regard and the measures mentioned above are always subject to appeal whereby a bona fide third
53
party can challenge the imposition of measures. In the case of the seizure of a bank account, for
example, the account holder whose financial means have been secured has the right to ask, at any
time, for cancellation or reduction of the securing and the presiding judge or the public prosecutor
must decide immediately about this application (Art. 79a(4) CPC) and similar provisions apply to
the seizure of immovable assets and the securing of other property value.
203. As far as the implementation of Criterion 3.6 is concerned, the Criminal Procedure Code sets
safeguards to prevent transfers of seized/secured property. Any disposal of the financial means
secured pursuant to Art. 79a and 79b is therefore restricted unless the responsible authority
(court/prosecutor) specifies otherwise or gives prior consent to any subsequent claim that affects
the assets. Similar provision can be found in Art. 79c(3). In the case of real estate secured pursuant
to Art. 79d all legal acts of the owner relating to the secured asset is ineffective except those aimed
at averting immediate threat of damage, and a similar provision can be found in Art. 79e(5) too.
204. There are also further rules for the securing of assets subject to the forfeiture of property,
according to which the person who has been charged cannot perform any legal acts that would
affect the seized property because such acts would be considered void. Forfeiture of property, as a
punishment is, however, out of the scope of R.3 and therefore these measures cannot be taken into
consideration either. When it comes to the confiscation of a thing or other property value, Art.
70(4) CC provides that before the decision on their confiscation is final and valid, the alienation of
confiscated things or other property value is prohibited, including the prohibition to disposal
thereof with the intention of frustrating their confiscation. A similar provision can be found in Art.
104 CC in relation to non-conviction based confiscation of things and other property value. This
means that any legal act that would violate this prohibition is considered to be void from the
beginning.
205. As for the additional elements in Criterion 3.7, all of them remained uncovered by the Czech
legislation. First, there are still no special rules to provide for the confiscation of property
belonging to an organisation that was found to be primarily criminal in nature. In their replies to
the latest MEQ the Czech stated that the Czech criminal law did not regulate the criminal liability
of legal entities and therefore it was not possible to impose forfeiture of a legal entity’s property in
criminal proceedings. This concerns both the inapplicability of the forfeiture of property and, on
the other hand, the confiscation of a thing or other property value pursuant to Art. 70, the
application of which also involves an “offender” (who cannot be a legal person) even though
confiscation of things or other property value is possible under the regime of non-conviction based
confiscation (Art. 101-102 CC) however, only in the framework of a criminal proceedings
concerning a natural person. No information was provided as regards the criminal organisations
without a legal personality but the evaluators doubt that there is any specific mechanism in this
respect.
206. As described in the previous report, the civil forfeiture i.e. confiscation based on civil standards
of evidence is still not recognised in Czech criminal law. Equally, nothing has changed as regards
the Czech position towards the reversal of the burden of proof post-conviction for confiscation
purposes. There is still no legal provision that would allow for such a possibility in Czech criminal
procedural law and, likewise, there seem to be no concrete plans to introduce such a mechanism in
the future. On the contrary, The Czech authorities defended their position in the MEQ according to
which “reversal of the burden of proof is not allowed because this would be deemed to be against
the presumption of innocence.” Beside this theoretical argument, they also noted from a practical
aspect that introduction of such a reversal had actually been considered during the drafting phase
of the new CC “however it has been assessed as ineffective since under Czech circumstances and
practical experience the perpetrators are nulla bona and if they have any property, they transfer it
to third parties and do show no possession. The new Criminal Code therefore addresses the
effectiveness of siphoning off proceeds of crimes from third parties and increasing the pecuniary
54
punishment.” This explanation shows an apparent misunderstanding of the concept of reversing the
burden of proof.
207. Statistical information was to a very limited extent provided to the evaluators and particularly as
regards the performance of the confiscation and provisional measures regime. According to the
table template that was included in the MEQ the following figures were provided before the onsite
visit (in the format below, the originally separate tables are amalgamated but the contents remained
the same).
Table 8: Performance of the confiscation and provisional measures regime
Investigations
2005
2006
2007
2008
2009
ML
FT
ML
FT
ML
FT
ML
FT
ML
FT
Prosecutions
Convictions
(final)
Proceeds seized
or frozen
cases
persons
cases
persons
cases
persons
cases
44
1
32
1
32
1
NP
NP
NP
NP
NA
2
NA
1
NA
1
NP
NP
NP
NP
13
0
16
0
10
0
16
NP
15
NP
22
0
35
0
12
0
25
NP
24
NP
6
0
10
0
6
0
5
NP
11
NP
7
0
10
0
7
0
7
NP
16
NP
NA
0
3
0
5
0
3
NP
5
NP
amount
(EUR)
NA
0
2,148,120
0
30,600
0
340,015
NP
460,361
NP
Proceeds
confiscated
cases
NA
0
NA
0
NA
0
NA
NP
NA
NP
amount
(EUR)
NA
0
NA
0
NA
0
NA
NP
NA
NP
NA: Not Available; NP: Not Provided
208. The table is incomplete, especially when it comes to the number of investigations in the last two
years before the onsite visit. The table contains no figures related to terrorist financing but it may
still be informative regarding money laundering cases where “money laundering” exclusively
refers to the legalisation offence in Art. 216 CC. Unfortunately, there are no figures available (NA)
as regards the number of cases in which proceeds were confiscated and neither on the aggregated
amount of such proceeds. That is, the only statistical information that can be gained from this
source is that some notable amounts of criminal proceeds were seized or frozen in money
laundering cases in the last five years (with apparently 2,148,120 € in 2006) and that prosecutions
were quite often accompanied with the application of such provisional measures (e.g. in 5 cases out
of 10 in 2007 or 5 out of 15 in 2009).
209. No statistical information was provided to the evaluators regarding, for example, whether the
above figures refer to the amount of proceeds seized during the investigation or those remaining
seized even after the motion of the prosecutor (“after cancellation” as mentioned in another statistic
to be discussed below). However, there is a total lack of statistical data regarding the amount of
proceeds confiscated. Domestic authorities admitted that no such statistical information was kept
as yet and they were going to collect and maintain such statistics as from the year 2010. Without
this source of information, the evaluators were unavoidably prevented from drawing any wellgrounded conclusion as to the effective functioning of the confiscation regime. Notwithstanding
that, some representatives of the Police disclosed that, according to the data available to them, the
ratio between seized and confiscated assets in the Czech Republic is definitely “very low”.
210. The other statistics the evaluators were provided with onsite contains figures as regards the
overall volume of asset seizure in the Czech Republic. In this context “asset” means criminal
proceeds (“výnos z trestné činnosti”) so one can also make a comparison between this table and the
one above. In any case, it can be seen that the prosecution actually functions as a filter within the
55
confiscation regime, which can be measured by the proportion of assets released upon the act of
the prosecutor (this difference was strikingly high in 2004-2005).
Table 9: Overall volume of asset seizure
In Euro-€
2004-2005
2006
2007
2008
2009
Assets seized
116,450,000
59,500,000
30,225,000
55,440,000
53,900,000
Amount of assets “after
cancellation”
(remained seized after
the indictment)
28,000000
43,000,000
29,000,000
55,000,000
41,700,000
Total damage caused by
crimes in the Czech
Republic
(2005)
1,765,220,000
996,366,000
935,587,000
1,298,740,000
1,068,230,000
211. Another set of statistical figures was also provided to illustrate the amounts seized by the Unit
Combating Corruption and Financial Crimes. These figures are relatively high as compared to the
overall data above, which particularly refers to the year 2007 when the majority of all criminal
proceeds seized or frozen in the Czech Republic were secured in cases investigated by the said law
enforcement authority (€ 15,441,200 as opposed to € 30,225,000).
Table 10: Amounts seized by the
Unit Combating Corruption and Financial Crimes
In Euro - €
assets seized
2007
2008
2009
15,441,200
26,036,000
21,313,700
amount of assets
“after
cancellation”
14,250,200
25,502,600
11,950,500
212. Provisional measures are said to be taken quite regularly. Nevertheless, without any statistics on
confiscation performance, the actual effectiveness of the regime could not be assessed and the
evaluators are concerned about the imbalance between seized assets and those finally confiscated.
213. Both public prosecutors and the representatives of the FAU expressed some dissatisfaction with
the speed and efficiency by which the seizure of financial means on a bank account (or accounts
kept by other financial institutions) can be carried out by virtue of Art. 79a and 79b CPC. The main
shortcoming they mentioned was that these measures cannot be applied by the law enforcement
authorities unless they obtain prior approval from the public prosecutor. As a result, the police
cannot act immediately in urgent cases and particularly before the initiation of any formal
investigation when there is only intelligence information available upon which immediate action
should be taken.
214. To overcome this deficiency, the same domestic authorities supported the involvement of the
FAU with a potential for the immediate application of the freezing mechanism provided by the
AML/CFT Law in Art. 20. As it was explained, the Police can, particularly in urgent cases, avoid
waiting for the prosecutor’s approval by turning directly to the FAU. Certainly, neither the Police
nor any other law enforcement or prosecutorial authority could order, or at least ask, the FAU to
freeze a bank account but nothing prevents them from triggering the suspension of a suspicious
transaction by providing the FAU, usually after prior negotiations, with the respective intelligence
information thereof. The FAU would automatically treat such information as an STR upon the
56
receiving of which they consequently and immediately suspend the transaction for a period of
maximum 72h (Art. 20 para 3b) then file a criminal complaint to the law enforcement authority
which may prolong the suspension with an additional 3 calendar days (Art. 20 para 7) and this time
frame will necessarily be enough for the police or other investigating authority to prepare for any
further action to be taken under the CPC.
215. In fact, the evaluators did not really understand why a law enforcement authority would, in order
to perform its own functions within its own competence, make use of the powers of another
administrative authority instead of making full use of its own power and the tools vested to it by
the provisions of the CPC. Specifically, it remained entirely unclear why the Police or other
investigating body would complain over the delay caused by obtaining a prior approval from the
public prosecutor while each and every article of the CPC that provide for the various sorts of
provisional measures, and specifically Art. 79a-79b on the seizure of banking and other accounts,
specify that “the previous consent of the public prosecutor is not necessary in urgent cases which
cannot be postponed. The police authority is obliged to inform the public prosecutor about such
decision within 48 hours, and the public prosecutor shall either approve, or cancel, the same” as
provided by, for example, Art. 79a(1) CPC. Indeed, the prosecutors added that in criminal
proceedings, in principle, the FAU should not be needed for freezing a bank account and that the
48 hours deadline must be sufficient for obtaining a subsequent prosecutorial consent as there are
always prosecutors on duty, at every level of the system (district-regional-high) beyond office
hours and on holidays, who can give the necessary approval immediately.
216. Certainly, it cannot be considered a shortcoming if the law enforcement authorities get some
helpful assistance from the FAU in freezing assets in cases of extreme urgency. Notwithstanding
that, the purposes of a criminal procedure, such as the securing of assets with a view to their
confiscation, should primarily be achieved by bodies so authorised by the CPC particularly if they
do have the powers to immediately act on their own (48h must be enough to obtain the
prosecutor’s subsequent approval). Czech authorities should therefore reconsider the staff and
budgetary resources the provision of this, otherwise very helpful, assistance requires so that the
primary tasks of the FAU will not be jeopardised.
217. As for provisional measures and confiscation in general, the evaluators noted some promising
signs of a growing importance of financial investigation that is, paying attention to the
identification of criminal proceeds, from the law enforcement and prosecutorial side. Financial
investigations are conducted parallel to the normal investigation and involve mainly the gathering
of banking information, often in the framework of international co-operation. In this respect, the
Police tend to apply their “best practice” routinely though it always depends on the nature of the
case and, particularly, the public prosecutor’s approach whether and how intensively and
efficiently such a financial investigation is carried out. Some representatives of the police
mentioned with satisfaction their co-operation with the agents of the Office for Representation of
State in Property Matters in tracking and tracing property as well as securing property subject to
temporary measures pursuant to Act No. 279/2003 Coll. on execution of securing the property and
things in criminal proceedings, as it was described more in detail in the 3rd round MER.
2.3.2
218. The Czech criminal legislation made some significant steps forward by enlarging the scope of the
confiscation regime to encompass not only “things” but also the so-called “other property value”
the definition of which is broad enough to meet the definition of “property” in the FATF
Methodology. Art. 70 CC is therefore more in line with Criterion 3.1 nevertheless it remained
unclear whether and to what extent the property that has been laundered, and cannot be considered
as proceeds under the said Article, is covered by the confiscation regime.
57
219. Equally, the introduction of third party confiscation and, in general, the scope of the provisions
governing non-conviction based confiscation is welcomed by the evaluators and so is the
introduction of the confiscation of substitute value in both the conviction-based and the nonconviction based regimes. The same goes for the broadening of the range of temporary measures,
which are now applicable to such assets as immovable property, assets held as financial
participations etc. As a result of this, the Czech legislation adequately re-established the harmony
between the confiscation and the provisional measures regime that had still been found problematic
at the time of the previous evaluation.
220. On the other hand, the Czech criminal substantive law still does not clearly distinguish between
direct and indirect proceeds and particularly as regards assets deriving from criminal proceeds such
as income, profits or other benefits when it comes to the confiscation of proceeds of crime under
Art. 70 CC. The evaluators found it a definite shortcoming taking into account that indirect
benefits are clearly covered by the current regime of provisional measures in the CPC.
221. The evaluators note it as a further deficiency that confiscation of a thing or other property value
remained entirely discretionary, especially since it can constitute an alternative measure to
imprisonment.
222. As a consequence, it is recommended that the Czech authorities
- ensure consistency with all aspects of Criterion 3.1 by providing that confiscation applies in
respect of all kinds of property that has been laundered;
- clearly provide for the confiscation of property that is derived directly or indirectly from the
proceeds of crime; including income, profits or other benefits from the proceeds of crime;
- the substantially discretionary character of the confiscation of proceeds and instrumentalities
should be limited; ideally, confiscation in such cases should be mandatory.
223. From a practical point of view, Czech law enforcement authorities should more efficiently exploit
the possibilities that the CPC provides for the immediate securing of financial means of bank
accounts and the involvement of the FAU and the administrative freezing mechanism should be
reduced to extraordinary cases of ultimate urgency.
224. As far as the low seizure/confiscation ratio is concerned, the Czech authorities should first of all
establish and maintain reliable and detailed statistics on the performance of the entire confiscation
regime and then analyse the reasons why seizures, once they are taken more regularly and
successfully, fail to result in more confiscations.
225. And finally, although it is but an additional element in the Methodology, the evaluators suggest
that Czech authorities should reconsider introducing the reversal of the burden of proof postconviction for confiscation purposes.
2.3.3
Compliance with Recommendations 3
Rating
R.3
PC
•
•
•
The confiscation of property that has been laundered is not
expressly addressed by law and in lack of autonomous ML cases
the practical applicability of the existing provisions is unclear;
There is an effectiveness issue with regard to confiscation;
The lack of statistics on confiscation negatively affects the system.
58
2.4
Freezing of Funds Used for Terrorist Financing (SR.III)
2.4.1
Special Recommendation III (rated PC in the 3rd round MER)
226. SR.III in the Czech Republic is addressed in both domestic and EU-level legislation. Funds and
assets of terrorists are thus to be frozen on the basis of EC Regulations and complementary
domestic legislation.
227. As to the former, UNSCRs 1267(1999), 1390(2002) and 1455(2003) are implemented by Council
Regulation No. 881/2002, while UNSCR 1373(2001) is implemented by Council Regulation No.
2580/2001. These EU Regulations are directly applicable in the Czech Republic without the need
for domestic implementing legislation. In this respect, no substantial changes have taken place
since the 3rd round MER and therefore all findings and conclusions of the previous evaluation team
are valid without the need of reiteration.
228. The situation on domestic legislation changed since the 3rd round evaluation. The Czech
lawmakers adopted the Act on Implementation of International Sanctions (Act no. 69/2006 Coll.
hereinafter: IIS Act). The evaluators welcome this legislative step, as a result of which the reliance
on the mechanisms of the EU to comply with SR.III is helpfully complemented by the
establishment of an EU compatible legal framework (by revoking, among others, Act no. 48/2000
Coll. on measures concerning the Afghan Taliban movement and Act no. 98/2000 Coll. on the
implementation of international sanctions for the purposes of preserving international peace and
security) and the new law now addresses a number of the issues raised by the 3rd round MER.
229. As noted in the previous report there are separate regimes in the European Union applicable, on
the one hand, for non-EU-based entities or non-EU residents or citizens listed as terrorists (EU
externals) and those having their roots, main activities and objectives within the European Union
(EU internals). The latter are not covered by Council Regulation No. 2580/2001 due to the scope of
the EU Common Foreign and Security Policy. Therefore the EU adopted two Council Common
Positions (2001/930/CFSP and 2001/931/CFSP) on the fight against terrorism, which are also
applicable to persons, groups and entities based or resident within the EU but their implementation
requires subsequent enactment of national legislation. In the Czech Republic, the latter was
specifically carried out by the Regulation of the Government No. 210/2008 Coll. which prohibits
providing goods, services or activities specified, among others, in Art. 5 para 2 of the IIS Act
(sanctions in the area of financial transfers, use of other payment means, purchase and sale of
securities and investment tools) to natural persons and members or representatives of organised
groups so listed by the above mentioned EU instruments (the lists are annexed to the regulation).
230. The Czech authorities emphasised that SR.III was implemented both by the AML/CFT Law on
the one hand and by the general IIS Act together with all the relevant and directly applicable EU
legislation as extended by the above mentioned Regulation No. 210/2008 Coll. Although the EU
regulations had already been considered as self-executed in the Czech Republic at the time of the
3rd round evaluation, the previous team found limited awareness and commitment among entities in
the financial industry to apply such freezing measures directly and, indeed, the authorities
disclosed that the freezing of funds was basically applied either in the course of a criminal
procedure pursuant to the CPC provisions on temporary measures or, in situations not related to
criminal proceedings, under the AML Act then in force (No. 61/1996. Coll.) by virtue of Art. 6 on
the suspension of the execution of an order from a client. Such a measure was also applicable to
transactions that had the objective of financing terrorism since the definition of “suspicious
transaction” under Art. 1a(6) included transactions the funds used in which were “intended for the
59
financing of terrorism, terrorist activities or terrorist organisations” and, particularly, in cases
where a participant to the transaction was a legal or natural person against whom the Czech
Republic was applying international sanctions pursuant to a special Act, or, where the subject of
the transaction involved sanctioned goods or services provided to a sanctioned subject or
individual (para 6 lit f and g) in which respects the law made explicit reference, in a footnote, to
the above mentioned Acts no. 48/2000 Coll. and no. 98/2000 Coll.
231. The current AML/CFT Law (no. 253/2008 Coll.) is broadly similar with only minor amendments.
The definition of “suspicious transaction” in Art. 6 now simply refers to circumstances that lead to,
among others, the suspicion of terrorist financing as defined by the law, without further
specification. According to Art. 6 para 2 a transaction shall always be perceived as suspicious,
should:
a) the customer or the beneficial owner be a person against whom the Czech Republic had
imposed international sanctions under the Act on Implementation of International Sanctions,
b) the goods or services involved in the transaction fall in the category against which the
Czech Republic had imposed international sanctions under the Act on Implementation of
International Sanctions(...)
232. Thus, the general scope and structure of this categorisation remained practically the same with
the only difference that now it is the IIS Act to which reference is made in this respect.
233. As was discussed in relation to Recommendation 3 above, the suspension of a client order, both
under the former AML Act and the current AML/CFT Law, is only possible for a total period of 72
hours and if the suspicion is confirmed, the FAU submits a criminal notification to police bodies
and the transaction can be suspended for a further period of three days to enable the police bodies
to decide on further steps in the procedure. As a consequence, this administrative freezing
mechanism would in itself finally lead to the application of criminal procedural standards (whether
or not to apply the provisional measures under Art. 79a to 79c CPC) with the aim of initiating a
formal criminal procedure.
234. In addition to that, the current definition of a “transaction” in Art. 4(1) still covers “any
interaction of the obliged entity with another person should such interaction lead to the handling of
the other person's property or providing services to such other person” which could in itself be
considered limiting, as it was in the former AML Act. More specifically, the new law makes no
general reference to assets held by designated persons and entities. Instead it refers to (goods or
services involved in) a transaction thus excluding, at least in principle, the reporting of dormant
funds where there has been no “interaction” - though The Czech authorities are of the legal opinion
that the holistic interpretation of the AML/CFT Law (particularly that of Art. 18 on the reporting
obligation) may extend the scope of applicability of this term.
235. Concerns about the overall applicability of the freezing regime built upon the preventive
AML/CFT legislation appeared to be over by the changes in the legal background caused by the
adoption of the IIS Act which provides for an administrative freezing mechanism applicable to
funds and assets subject to international sanctions imposed for the purpose of maintaining or
restoring international peace and security, protecting fundamental human rights and fighting
terrorism.
236. While the AML/CFT Law only requires the reporting of “transactions” as discussed above, the
reporting duty in the IIS Act appears, on the face of it, is significantly broader as it makes reference
to “assets” instead. Pursuant to Art. 10(1) “who establishes in a credible manner that he or she has
in possession assets which are subject to international sanctions, shall report the same to the
60
Ministry without undue delay” (the evaluators learnt that “Ministry” i.e. the Ministry of Finance
equals FAU in this context).
237. However, the definition of “assets” is, according to Art. 3(f) of the same Act, limited to movable
and immovable items as follows:
“…any movable or immovable item owned, held or otherwise controlled by the entity which is
subject to international sanctions, by a person who is subject to international sanctions, imported
to the territory which is subject to international sanctions or earmarked for export to the territory
which is subject to international sanctions”.
238. “Funds or assets” in the sense of the FATF Methodology should cover financial assets, property
of every kind, whether tangible or intangible, movable or immovable, however acquired, and legal
documents or instruments in any form, including electronic or digital, evidencing title to, or
interest in, such funds or other assets, including, but not limited to, bank credits, travelers cheques,
bank cheques, money orders, shares, securities, bonds, drafts, or letters of credit, and any interest,
dividends or other income on or value accruing from or generated by such funds or other assets.
239. The IIS Act contains “goods” as a different legal term the definition of which (Art. 3 para g)
appears broader than that of “assets” above: “goods shall mean material things, rights and other
values, such as money in any form including deposits and receivables from deposits, other means
of payment, securities and investment tools, and further any material designated for production of
products, products, services, software and technologies and any other movable and immovable
items which are subject to trade regardless of the manner and circumstances under which they are
obtained”, but Art. 10(1) as quoted above, only refers to “assets” and not to “goods” (a positive
feature is, however, that assets under the control of the designated entity or person are also
included.)
240. Since the reporting obligation under Art. 10 IIS Act does not appear applicable to funds other
than tangible objects (movable and immovable items) the natural and legal persons, who possess
assets/property subject to international sanctions in the form of bank account money,
dematerialised securities, property rights etc. may only be obliged to report them to the FAU
pursuant to the AML/CFT Law, provided that they are obliged to do so. Reference is made at this
point to Art. 6(2) lit a)-b) as quoted above. Notwithstanding all these apparent discrepancies in the
domestic legislation, The Czech authorities made it clear that neither the AML/CFT Law nor the
IIS Act could to any extent restrict the applicability of the relevant EU legislation in this field. On
the contrary, these pieces of legislation are to complement the EU regulations when it comes to
freezing funds or assets according to the respective UNSCRs. In other words, reporting of funds
and other assets belonging to designated persons and entities may take place according to (i) the
IIS Act if the respective assets consist of tangible items and (ii) the AML/CFT Law in case of any
other property or property rights involved in a transaction carried out by a reporting entity and first
and foremost (iii) according to the directly applicable EU restrictive measures undoubtedly
covering any tangible or intangible items.
241. In any ways, it is the FIU that receives the information and carries out any further measures for
the freezing of the assets, in which respect all this relevant legislation appear to complement each
other. Certainly, the apparent harmony and co-applicability of European and domestic legislation
should ideally be tested by concrete cases of freezing assets but no case practice within the sphere
of SR.III has so far been achieved by the Czech Republic.
242. Regarding criterion III.4, the 3rd round MER specified a number of elements which made part of
the definitions of terrorist funds and other assets subject to freezing and confiscation pursuant to
the respective UNSCRs and hence the FATF requirements but which were not covered by the two
61
EU Regulations. As a result, the definitions contained in the regulations did not cover the full
extent of the definitions given by the Security Council (or FATF).
243. This difference however poses no problem in the application of the IIS Act, as its scope extends
to international sanctions (orders, prohibitions or restrictions imposed for the purpose of
maintaining or restoring international peace and security, protecting fundamental human rights and
fighting terrorism) provided they stem, pursuant to Art. 2(1):
a) from UNSC Resolutions adopted under Art. 41 of the Charter of the United Nations,
b) from common positions and joint actions or other measures adopted under the EU Treaty
common foreign and security policy (CFSP) provisions; or
c) from directly applicable legislation of the European Communities which implements a
common position or action adopted under the EU Treaty CFSP provisions.
244. Considering that para 1(a) explicitly provides for the direct implementation of the respective
UNSCRs this solution should, at least in principle, exclude any uncertainty caused by the above
mentioned difference in definitions.
245. Turning to Criteria III.5 and III.6, these require from countries to have effective systems for
communicating actions taken under the freezing mechanisms to the financial sector and / or the
general public immediately. The Council and the European Commission make Regulations and
Decisions public through the Official Journal of the European Union, which can be accessed by
anyone on the website of the European Union. Furthermore, all EU legal acts are being published
in the Czech official gazette Collection of Laws (Coll.). Information for financial institutions on
restrictive measures is also available on the websites of the FIU at
www.mfcr.cz/mezinarodnisankce.
246. The authorities consider that publications on the EU’s official journal and on the websites of the
EU and the Czech FAU are sufficient notifications to all for whom the legislation creates
obligations and rights. The Czech authorities advised that the financial sector is in close connection
with the FAU and it is regularly informed about international sanctions by direct communication or
by information published by the FAU on the Internet. Moreover, the FAU places importance on
awareness-raising and hence it continuously provides general explanations and specific advices via
mail, e-mails and phone both on demand and also spontaneously like providing answers to
frequently asked questions on its website. In addition to that, its representatives participate at
stakeholders’ meetings (e.g. the FAU director visits each Security Commission meeting of the
Czech Banking Association) and the FAU offers also training for associations of stakeholders. As a
result, the financial sector is supposed to be regularly informed by the FAU about international
sanctions by either direct communication or by information published on the Internet.
247. From another aspect, however, it also means that the situation remains broadly unchanged
from the third round evaluation. As for Criterion III.5, there remains heavy reliance on the
expectations that obliged entities access EU and FAU web sites for checking purposes while there
continue to be no specific guidelines to ensure an effective system regarding action under freezing
mechanisms. Equally, in case of Criterion III.6 The Czech authorities advised that the “EU Best
Practices for the effective implementation of restrictive measures” is used to give practical
guidance and recommendations on issues arising in the implementation of financial sanctions.
However, there are no guidelines which flesh out these best practices for the benefit of obliged
entities.
248. Criterion III.7 requires countries to have in place effective and publicly known procedures for
considering de-listing requests and for unfreezing the funds or other assets of de-listed persons or
entities in a timely manner consistent with international obligations. In this respect, the findings
62
and conclusions of the third round report remain valid. The Czech Republic has no listing/delisting
mechanism of its own and it relies upon the formal de-listing procedures established under the
European Union mechanisms. These had already been discussed in the previous report and the
evaluators were not made aware of any substantial changes in this field. While there are no
procedural rules or legislation which sets out the way in which a person who is de-listed from the
UNSC 1267 list, the FIU as part of its overall competence in implementing the IIS Act would assist
and advice individuals in this circumstances.
249. The situation is different when it comes to the unfreezing of funds and assets of persons or
entities inadvertently affected by freezing (as a result of mistakes or namesakes) upon verification
that the person is not a designated person (Criterion III.8). In addition to the European Union
mechanisms, the IIS Act introduced a domestic procedure too. As it is provided by Art. 11(5) the
FAU shall release assets subject to international sanctions provided that (a) the affected person
proves that he/she is not a person subject to international sanctions and that he/she is the owner or
holder of those assets in due course (b) the document imposing the international sanction stipulates
a specific person to whom the assets are to be released or (c) there is a final judgment of a domestic
government body of appropriate jurisdiction, a foreign government body or an international
organisation the decision of which is enforceable in the Czech Republic. Out of these, it is lit (a)
which provides for a procedure meeting, in any extent, the requirements of Criterion III.8.
Nevertheless these procedural rules do not appear to guarantee that unfreezing takes place “in a
timely manner” as required by this Criterion.
250. At the time of the on-site visit, there had not been any cases in the Czech Republic requesting
delisting or unfreezing in the context of SR.III.
251. Appropriate procedures by which the freezing measure can be challenged with a view to having it
reviewed by a court, as required by Criterion III.10 are provided, first and foremost, at the
European level. Freezing mechanisms envisaged by the relevant EC regulations can be challenged
at the Courts of the European Community whereby any natural or legal person directly and
individually affected by a restrictive regulation or decision can challenge it under the general
principle established by Art. 263 of the Treaty on the functioning of the European Union. The
legality of freezing measure can also be challenged by bona fide third parties before the Courts of
the European Community.
252. In addition to that, the freezing decisions taken under the IIS Act can be challenged under the
general rules of administrative procedure (Law No. 500/2004 Coll.) The freezing of funds
pursuant to the IIS Act is considered an administrative act, in which respect Art. 12(5) specifies
that “proceedings in matters covered by this Act are governed by the Rules of Administrative
Proceedings, unless provided otherwise herein”. Against the decisions the FAU may make
pursuant to Art. 12(1) of the IIS Act, including the application of restriction or prohibition of
disposing of assets (lit a) or forfeiture of assets not released upon request (lit b), a remonstrance
may therefore be filed with the FAU according to Art. 12(3). The FAU as an administrative
authority decides upon such a remonstrance and its decision is subject to further court review: it is
possible to appeal against such measures with a view to bringing the case before the
administrative court.
253. Notwithstanding that, the evaluators note that such a procedure does not defer a range of
decisions under Art. 12(1) including those referred to above. In this context, from the the point of
timeless, the ordinary administrative appeal procedure is not an appropriate mechanism to remedy,
in a timely manner, the situation of such persons or entities affected by a freezing mechanism upon
verification that the person or entity is not a designated person.
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254. At the time of the 3rd round, the Czech Republic had no specific national legislation to meet the
requirements in Criterion III.9, as a result of which an application for authorising access to frozen
funds, supposed to be dealt with under the Criminal Procedure Code will be dealt with instead by
decisions taken by the judicial bodies on an ad hoc basis (although no such cases were reported to
have even occurred). Legal uncertainty was finally resolved by the adoption of the IIS Act which
brought a significant development in this field.
255. According to Art. 9(1) of IIS Act, the Ministry of Finance (i.e. the FAU) may, provided the
document imposing the respective international sanction so permits, grant, in compliance with the
same document and to the extent necessary, an exclusion from a prohibition or restriction for a
number of specific purposes listed therein. Considering that UNSCR 1267, as amended by UNSCR
1452(2002) is implemented in the European Union through Art. 2a of the EC Regulation 881/2002
which authorises the use of frozen funds for basic expenses, certain fees or for extraordinary
expenses, the evaluators are of the opinion that the preconditions set out in Art. 9 of IIS Act are in
line with the requirement in Criterion III.9.
256. According to the said Article, access to frozen funds may be granted, among others for:
- medical services and health care;
- provision of social allowance and government social benefits, retirement, healthcare benefits,
unemployment benefits etc.;
- payment of wages, refund of wages, redundancy pay and other payments due under the
employment or similar contract;
- alimony and child support;
- damages due to activities unrelated to international sanctions hereunder and for insurance
payments thereto related;
- payment of outstanding debt by an entity or person subject to international sanctions provided
the debt was not incurred by violation of the international sanctions etc;
- payments to the same entity/person due and payable on the basis of contracts, agreements or
liabilities entered into prior to international sanctions against the entity/person, provided these
payments are made to an account held in the Czech Republic or another country of the
European Union, to which account all deposits made are considered to be assets subject to
international sanctions.
257. Pursuant to para 2 the exemption may equally be granted upon request or ex officio. In its
decision, the FAU sets forth the terms of the exclusion in a manner which would allow for the
checking of the proper application of its terms and which would not mar the international
sanctions. Only in case of a “grave” violation of such terms shall the Ministry revoke the
exclusion.
258. No further procedural rules can be found in the IIS Act or elsewhere that would define e.g.
deadlines for such a decision (if the exclusion is granted upon request) or legal remedy against it
(though the general provisions of the Rules of Administrative Proceedings, as discussed above,
may be applied). While the conditions for exemption are in accordance with Criterion III.9 only
case practice will prove whether the existing rules actually provide for “appropriate procedures” in
this respect.
259. The general criminal law framework and mechanisms on seizure and confiscation have been
discussed in relation to Recommendation 3 earlier. All this legislation is of general application and
hence it could apply to assets involved in the commission of terrorist financing offences through
ordinary judicial means, beyond those targeted by UNSCRs 1267 and 1373. Similarly to the time
of the third round report, the rights of bona fide third parties (Criterion III.12) are protected
according to civil law rules where ownership right may be claimed by civil law action.
64
260. As regards the general requirements on monitoring in Criterion III.13 the evaluators were not
provided with any information substantially different from what had been disclosed in the previous
round of evaluation in this respect. It is now Art. 15 of IIS Act that regulates this area, providing
that:
- Government bodies responsible for the oversight shall oversee also fulfilment of obligations
hereunder; if there is no such government body, the oversight shall be carried out by the
Ministry. If problems are uncovered in connection with obligations hereunder, then the
respective government body shall provide available documentation for punitive proceedings
to the Ministry of Industry and Trade in matters that fall under its jurisdiction and to the
Ministry in all other matters. The responsible government body shall continue to co-operate
with the said ministries in the punitive proceedings.
- The Czech National Bank shall oversee the performance hereunder in case of banks,
branches of foreign banks and persons who have been issued a foreign-currency licence by
it; in cases where problems are uncovered the Czech National Banks shall proceed in
keeping with para 1, second sentence.
261. Nonetheless, the IIS Act introduced a comprehensive and dissuasive sanctioning regime in its
Part Five, providing for a range of administrative sanctions applicable in case of non-compliance
with the obligations prescribed by the law, including, according to Art. 17(1)
- violating a restriction or prohibition set forth in the IIS Act (also those related to financial
services and financial markets - Art. 5 para 2);
- violating a restriction or prohibition set forth in directly applicable legislation of the EU
Communities whereby international sanctions have been imposed ;
- failing to meet the reporting duty pursuant to the IIS Act;
- disposing of assets subject to international sanctions in conflict with the law;
- violating the confidentiality obligations.
262. The first three infractions can be sanctioned by a fine up to CZK 4.000.000 (approx. € 165,000.-)
while the others carry fines of a lower maximum amount. The same acts committed by a legal
person or a self-employed individual are considered as an administrative offence and sanctioned
accordingly or, in addition, by confiscation of assets. Furthermore, if the act was committed either
for a material benefit or causing a damage in excess of 5.000.000 CZK (approx. € 205,000.-) then
the maximum fine may reach the amount of 50.000.000 CZK (approx. € 2,050,000.-).
263. While these sanctions are applicable against those who have in possession assets that are subject
to international sanctions, the sanctioning regime of the AML/CFT Law can also be applied against
reporting entities for breaches of reporting and other obligations in the context of SR.III.
264. At the time of the 3rd round evaluation, the Czech Republic had no specific criminal sanctions for
non-reporting of STRs (apart from some views that the legalisation offence could apply in some
cases) but the legal framework currently in force provides for a range of sanctions applicable in the
context of SR.III. Specifically, Art. 410 CC establishes the violation of international sanctions as a
criminal offence providing that
Whoever violates to a significant extent an order, prohibition or restriction provided in order
to maintain or restore international peace and security, the protection of human rights and the
fight against terrorism, to the observance of which the Czech Republic is bound by its
membership in the United Nations or the European Union, shall be punished by imprisonment
up to three years or a pecuniary punishment.
65
265. Aggravated cases apply if the damage caused by or the benefit derived from the act is substantial
(para 2) or a large-scale one (para 3) or if the act is committed in connection with an organised
group operating in several states or it causes a serious threat to the international position of the
Czech Republic or significantly contributes to the disturbance of international peace and security,
measures aimed at protection of human rights or fight against terrorism. These cases carry
imprisonment from 6 months to 5 years and 3 to 8 years, respectively.
266. The evaluators were not given any detailed, statistical information of the occurrence of measures
applied in respect of CFT freezing, applied either spontaneously by the industry as a whole or by
the authorities following their own inquiries/investigation. Without of such information it could not
properly be assessed whether and what positive effects the introduction of the IIS Act has brought.
267. At the time of the visit there were no funds frozen in the Czech Republic pursuant to UNSCRs
1267 and 1373. However, the evaluators learnt that the regime had already been applied for the
execution of an international sanction, that is, in relation to a transaction prohibited by the IIS Act
but not upon any of the UNSCRs referred to under SR.III. The Czech Republic has solved a case
concerning the payment of advance invoice for goods to Myanmar (Burma) paid by a sanctioned
entity. The funds were seized in July 2008 in the amount of 10.069 USD and have since been in
deposit account with the Czech National Bank.
268. It appears that the financial sector is aware of the need to check the terrorist list. It is not clear
whether this is happening in DNFBP.
2.4.2
269. It is beyond doubt that the situation has improved significantly since the adoption of the IIS Act
as a comprehensive domestic law by which the legislators addressed a number of issues raised by
the previous evaluation team.
270. As a result, certain gaps in the EU legislation such as the coverage of “EU internals” has
successfully been remedied. Instead of, or rather alongside, the freezing (suspending) mechanism
in the AML/CFT Law, the IIS Act introduced an administrative freezing mechanism with all roles
and responsibilities thereto, including procedural rules for appealing against the freezing measure
and other rules for allowing access to the frozen assets in line with UNSCR 1452. In addition, the
current legislation provides for a dissuasive sanctioning regime as well.
271. Notwithstanding that, the evaluators still feel that the reporting duty that would trigger the
freezing measures is not designed in a way that would, a practical point of view, allow the
detection of all assets held in the Czech Republic by listed persons, and particularly assets not
manifested in “movable and immovable items” but in non-material property or property rights
(which are only covered by the directly applicable EU regulations) and/or that are not involved in a
“transaction” as defined by the AML/CFT Law. While the evaluators understand the holistic
approach of the Czech authorities by which all the three sources of legislation (AML/CFT Law, IIS
Act and the EU regulations as extended by the Government Regulation No. 210/2008. Coll.) are to
be taken into account at the same time whereby the domestic law complements the self-executed
EU legislation, they cannot see why the domestic law needs to be more restrictive in its scope (e.g.
when it comes to the question of intangible objects).
272. There are concerns that the DNFBP are not always in a position to identify persons listed on TF
lists.
273. It is therefore recommended to:
66
•
•
•
•
•
2.4.3
seek for more harmony between the domestic legislation and the EU regulations in this field
and, particularly;
provide that all domestic law(s) applicable in the context of SR.III clearly encompass the
whole concept of “funds and other assets” as defined by the FATF Methodology;
enhance and guarantee timeless in the national procedure for the purpose of delisting and
unfreezing requests upon verification that the person or entity is not a designated person;
more guidance is required on SR.III obligations to distinguish them from SR.IV reporting
duties;
more specific guidance to DNFPB on availability of and use of TF lists.
Compliance with Special Recommendation III & 32
Rating
SR.III
LC
• It is unclear whether all pieces of the freezing mechanism clearly
encompass the whole concept of “funds and other assets” as defined
by the FATF Methodology;
• The national procedure provided by the IIS Act for the purpose of
unfreezing requests upon verification that the person or entity is not a
designated person does not guarantee the timeliness of the process;
• There is no clear guidance to distinguish SR.III obligations from
SR.IV obligations;
• Concern that DNFBP are not always in the position to identify
persons on TF lists (effectiveness issue).
2.5
The Financial Intelligence Unit and its functions (R.26)
2.5.1
Recommendation 26 (rated LC in the 3rd round MER)
274. Department 24 of the Ministry of Finance is the Financial Analytical Unit (FAU) vested with the
FIU core functions. There was a separate specific provision on the FAU in the preventive Law
which was in force at the time of the 3rd mutual evaluation (Section 10). The new AML/CFT Law,
enacted on the 1st September, 2008, refers to the FAU as the “Ministry”. Indeed, the new
AML/CFT Law lacks a “stand-alone” article establishing the core FAU functions (receiving,
analysing, disseminating STRs) as was the case with the previous act. The functions of the FAU
are now distributed throughout the text of the new AML/CFT Law.
275. Section 18 paragraph 1 of the new AML/CFT Law refers to the obligation to disclose STRs to the
Ministry (FAU).
276. According to Section 24 of the new AML/CFT Law, the FAU has the power to request and
obtain from obliged entities all the information and documents on transactions under analysis. The
obliged entities have to provide access to the documentation on site if the Ministry requests them to
do so. Special procedures are in place for lawyers and notaries as, under section 27 paragraph 4,
the FAU can request and obtain such information and documents via the respective Chambers.
This issue is analysed under R.16.
277. According to Section 31 paragraph 1 of the new AML/CFT Law, the FAU “collects and analyses
information obtained in the course of performing its tasks ...” and “The Ministry may request
information necessary for the compliance with obligations under the Act from the Police of the
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Czech Republic, intelligence services and other public authorities (Section 30 paragraph 1 of the
new AML/CFT Law).
278. Internal rules on the procedure for analysis of STRs were issued by the Director of the FAU in
17.08.2009, and entered into force since 01.09.2009. The STR is sent by the Director to the Head
of the Analytical Department who, according to the workload of the analysts, assigns the STR to a
specific analyst. The analyst has at maximum two months to complete the analysis of the case and
to report back with a proposal to the Head of the Department, who then submits a proposal for
action to the Director of the FAU. The analyst may request an extension of the deadline if the case
is of particular complexity.
279. The FAU analysts use 12 licences of the analytical software “I2”, the Document Management
system (ELO), and “Moneyweb” (whose function is described below) and other systems to assess
the information requested for the analysis, to trace the movement of funds and to determine the
profile of the persons (both natural and legal) involved in the STR under analysis.
Diagram 1 : Disclosing and analysing phases
Repo rtin g reg im e
• Po lice Fo rces
• Intelligen ce Ser vice
• P ub lic Auth oritie s
O BLIGE D E N TIT IES
(as in dic ate d in Sec .2 exc ept
‘Pr of ess io na ls’
SL
A
N
O
SIS
EF
O
R
P
Au d ito r s /
Ta x Ad vis ors
Law yer s /
Pu b li c N ot ar ie s
C h am b e rs
Fo re ign F IUs
C h am b e rs
Tax /C u sto m s
A utho rities
Sec . 2 4
280. The scheme above (Diagram 1 – Disclosing and analysing phases) describes the disclosing
regime for “obliged entities” and the main domestic authorities and counterparts through which the
FAU requests information in order to perform the analysis of the STRs. The scheme also indicates
the relevant sections (sec.) of the new AML/CFT Law under which the FAU is empowered to
receive STRs and to request information from domestic and foreign authorities.
281. When the FAU discovers facts indicating that an offence was committed, it submits a criminal
complaint to the law enforcement authority, copying it to the prosecutor’s office not just for ML.
Any crime in the CC resulting in proceeds in the Czech Republic is a predicate offence for ML and
the FAU is not restricted in the types of case it may refer to law enforcement if they have sufficient
facts. The Ministry similarly informs the Customs or Tax authorities if the facts are not related to a
68
crime but are within their competence. (Section 32 of the new AML/CFT Law). (see also Diagram
2-Dissemination phase)
282. According to the practices established by the Czech authorities, the law enforcement authority
designated to receive the criminal complaint from the FAU is the Anti Money Laundering Division
(the “AML Division”) of the “Unit for Combating Corruption and Financial Crime” (UCCFC).
Diagram 2: Dissemination process
A M L D i v i s io n
of U CC FC
• Tax A u th o rity
• C u sto m A u th o rity
283. Under Section 20 of the AML/CFT Law, obliged entities may suspend a transaction that is
considered suspicious in terms of money laundering or terrorism financing. The FAU has the
power to extend that period for not more than 72 hours after receiving the STR, to suspend the
customer’s transaction or to freeze the assets for the time indicated above. After the analysis, in
case the FAU decides to notify a criminal complaint to the AML Division on the suspended
transaction, the latter has 3 calendar days to decide to freeze the transaction otherwise the obliged
entities shall perform the operation. The extent to which the freezing/suspension actions of the FIU
have resulted in effective criminal asset recovery is unclear.
Table 11: Suspension of transactions under Section 20 of the AML/CFT Law
2009
Suspension of transactions
Section 20 AML/CFT Law
Transactions suspended by the
obliged entities (Section 20.1)
Action by FAU to prolong the
suspension of transactions
(Section 20.3.a)
Action by FAU to suspend the
transaction of to freeze the
assets (Section 20.3.b)
Number
Amount
involved
(equivalent value in
EURO)
I Q 2010
Amount
involved
Number
(equivalent
value in
EURO)
93
N/A
39
N/A
45
≈ 83.000 €
28
≈ 500.000 €
2
N/A
1
N/A
N/A: not available; 1 euro ≈ 24,3 CZK
69
284. Moreover the new AML/CFT Law assigns additional functions and powers to the FAU described
hereafter.
285. The Ministry (FAU) is also vested with the following additional functions and powers:
a. Reviewing the internal procedures of the financial institutions: Section 21 AML/CFT Law;
b. Receiving information from the tax administration in case of suspicions of money laundering
and terrorism financing: Section 30, paragraph 2, AML/CFT Law;
c. Granting of exceptions according to the provisions indicated in Section 34 of the AML/CFT
Law;
d. Acting as supervisory authority for verifying the compliance with the AML/CFT Law: Section
35 of the AML/CFT Law;
e. Authorizing persons acting on remittance of money on a postal contract: Section 29 of the
AML/CFT Law;
f. Proposing to the competent authorities the revocation of a business licence of the persons that
repeatedly violate the AML/CFT Law: Section 36 of the AML/CFT Law;
g. Obliging Professional Chambers to carry out inspections to verify the compliance with
AML/CFT requirements: Section 37 of the AML/CFT Law;
h. Submitting proposals for the revision of legislation as indicated in the “Competency of the
department” (i.e. FAU) in the Rules of Organisation by the Ministry of Finance;
i. Providing training as indicated in the “Competency of the department” (i.e. FAU) in the Rules
of Organisation by the Ministry of Finance.
286. The new AML/CFT Law does not require the Ministry (FAU) to provide the obliged entities with
specific guidance on the reporting obligation but the FAU has prepared and posted such guidance
on the website of the Ministry of Finance (www.mfcr.cz/fau), including the reporting form.
287. This guidance is however not mandatory. The evaluators noted that not all representatives of the
obliged entities were aware of the guidance on the website.
288. Under FATF c.26.3, the FAU should have access, directly or indirectly, on a timely basis to the
financial, administrative and law enforcement information that it requires to properly undertake its
functions, including the analysis of STRs.
289. According to Section 30 of the new AML/CFT Law, the FAU may request information from the
Police, Intelligence Services and other public authorities, including Tax authorities and Customs
(see also, Diagram 1 - Disclosing and analysing phases).
290. According to Section 30, paragraphs 3 and 4, of the new AML/CFT Law, the FAU is provided
with specific and detailed information from the Central Register of inhabitants and foreigners, in
electronic format provided the technical means are in place (the FAU uses “Moneyweb” for its
contacts with the Police and the other public authorities to obtain such information).
291. The evaluators verified on-site that the analysts have direct access to “Moneyweb “in the process
of STR analysis. Moneyweb is an encrypted system of connection between the FAU and the Police
on the one side and between FAU and the major banks operating in the Czech Republic (9 banks
out of 39 that send approximately 80% of the STRs, as indicated by Czech authorities).
292. Section 30, paragraph 5 limits the use of information provided to what is necessary for the
analysis.
70
293. The FAU requests information from the police relating to criminal records, convictions, current
investigations, individuals under supervision and judicial control and/or under investigation but not
convicted, as well as making foreign police requests for assistance where necessary.
In urgent cases, the Ministry (FAU) analysts may request and obtain information from the
domestic Police within 24 hours.
294. As regards administrative information, the FAU has access to the information held in the business
registers, the tax registers, population register, cross-border transportation register, NPO/NGO
registers, vehicles register.
295. The FAU is currently developing a Central Register of Accounts, which will contain information
on all accounts held in banks operating in the Czech Republic.
296. The FAU has access, on-site or upon request and within a given period of time, to the information
and documents on transactions and persons involved. The obliged entity shall provide access to
documentation onsite if requested to do so (Section 24 of the new AML/CFT Law).
297. There is a specific limitation under Section 27, paragraph 4, for lawyers and public notaries,
according to which additional information and documents are to be requested by the FAU via the
professional bodies (Chambers). This provision does not limit the possibility of the FAU to obtain
information but it could breach the confidentiality of the cases under investigation. The new
AML/CFT Law is silent on this issue for other professionals (i.e. Auditors, Tax Advisors, etc.).
298. As indicated above, FAU analysts request information via the “Moneyweb” system from the
major banks and from the other obliged entities via the so called “Moneyweb Lite Klient”, which is
accessible on websites of the Ministry of Finance. Extending the “Moneyweb” system would
influence positively the analytical workflow of the FAU.
299. According to Section 32 paragraph 1 of the new AML/CFT Law if the “Ministry find facts
suggesting that a crime had been committed, it shall lodge a criminal complaint under the Code of
Criminal Procedure and provide the law enforcement authority with all the information that the
Ministry had found in the course of its investigation.” This provision is wider than the FATF
standards as the FAU has to disclose “facts suggesting that a crime” (money laundering and TF
offences are only part of the remit). The AML/CFT Methodology interpreting the FATF standard
requires disclosure to the domestic (investigating) authority when there are grounds to suspect
money laundering or terrorism financing. Furthermore, the FAU is an administrative type of FIU
with no law enforcement powers to investigate facts that could be related to crimes.
300. During the on site visit the representatives of the FAU indicated that they interpret this provision
as a general requirement which permits the FAU to reveal cases and facts which are not only
related to money laundering or terrorism financing. According to them this provision is a useful
means to provide the law enforcement authorities with cases in the public interest. According to the
FAU, analysts met during the onsite visit were aware that suspicions should be reported without
necessarily looking for evidence.
301. According to the national AML/CFT system, the “criminal complaints” are referred by the FAU
to the Anti Money Laundering Division of the “Unit for Combating Corruption and Financial
Crime” (UCCFC) of the Police which investigates the cases.
302. The table below shows the number of STRs received and analysed by the FAU (i.e. “cases
opened” according to the FAU procedures) and the number of cases referred to the Police Forces.
The third row displays the percentage of criminal complaints notified out of the total number of
STRs received and analysed.
71
Table 12: STRs received and analysed by the FAU
STRs received and analysed by FAU
Criminal complaints referred by FAU
to Police Forces /AML Div.)
Criminal complaints/STRs (%)
2008
2320
2009
2224
1Q2010
391
78
191
73
3.4
8.6
18.7
303. As indicated above, the percentage of criminal complaints notified to the AML Division of
UCCFC has increased since 2008 and they are all related to money laundering offences, according
to the Ministry (FAU). None of them refer to the financing of terrorism. The absence of statistical
data on how many money laundering cases have in practice resulted from the FAU reports sent to
the Police makes any assessment of the impact of the FAU reports on overall law enforcement
results very difficult. From the information provided, the impact of the FAU reports on overall law
enforcement results for most of the years under review appears to be small, as very few of the
reports become effective law enforcement investigations.
304. Since 2008 the Ministry (FAU) has sent almost the same number of reports to the Tax
Administration as it has to its main police counterpart (the AML division). This raised issues as to
how the analyses are performed. It was unclear whether the priority is looking for tax
infringements rather than AML/CFT and the extent to which this statutory responsibility to look
for facts suggesting other crimes (as reflected in disclosures to Tax and Customs) diverts valuable
FAU analytical resources from the traditional AML/CFT mission of the FAU. The evaluators were
advised that analysts often find accounts that were not declared as business accounts. FAU analysts
have access to tax databases and routinely interrogate those databases in their analyses.
Table13: Disclosures sent to Tax administration or Customs
Disclosures sen to to Tax
Administration
Disclosures
2008
2009
1Q2010
128
180
60
7
2
5
305. As noted, there is no specific provision in the new AML/CFT Law on the independence and
autonomy of the FAU. According to the law, the FAU (Department 24 of the Ministry of Finance)
is vested with the functions of a FIU. There are no further by-laws governing the organisation of
the Ministry.
306. At the time of the 3rd round evaluation a decree governed the organisation of the FAU. It appears
that since the new AML/CFT Law the organisation and procedures of the FAU are only defined by
the “Rules of Organisation” (annexed) that indicate the competences of the Ministry (FAU) and of
its three Divisions. The Director of the FAU is appointed by the Minister of Finance and is
responsible to the Deputy Minister of Finance. The Minister of Finance establishes the Divisions
within the FAU and appoints the Heads of Divisions on the proposal of the Director of the FAU.
There are three Divisions: the International Co-operation and Legal Division (international
information exchange, international sanctions, AML/CFT legislation), the Analytical Division
(analysis of STRs) and the Supervisory Division (supervision of obliged persons).
72
307. The budget of the FAU is established by the Minister of Finance and is not separated from the
general budget of the Ministry except for the IT equipment and the physical protection of the
personnel of the Unit.
308. There are two provisions in the new AML/CFT Law which are said to enhance the independence
of the Unit (sections 18.4 and 31.5). The latter primarily establishes the technical independence of
the FAU from the other Departments of the Ministry of Finance and the restricted access of
personnel to the office of the FAU.
309. Section 31(5) on Processing of Information provides:
“The Financial Analysis Unit is technically separate from the other departments of the
Ministry: it has implemented measures in the area of organisation and personnel to ensure that
unauthorised persons do not come into contact with information obtained under this Act.
310. While section.18(4) on suspicious transactions states:
“The Ministry shall receive the suspicious transaction report via the Financial Analysis Unit,
which is a part of the organisational structure of the Ministry […].”
311. The Rules that describe the competencies and organisation of the FAU (and are not by-laws),
they are prepared and approved by the Deputy Minister of Finance, who has power to modify the
organisational structure.. This document does not refer to the Director of FAU at all, or indeed
clearly empower the Director to decide which reports should be disseminated to law enforcement,
though in practice the evaluators were told that these decisions are taken entirely by the Director of
FAU and there is no reason to doubt that this is not the case in practice at present. Indeed the
Director, as well as other representatives, indicated that they had never been influenced or
impeached in their duties.
312. There is no by-law or legislative provision which sets out the position of the Director of FAU, his
term of office, to whom he reports and the reasons for which he might be dismissed. The FAU
argues that their independence is embedded in the Law, but the evaluators could not find this to be
the case. It appeared to the evaluation team that the independence of the FIU in its decision-making
process and generally was understood more as a convention than as a matter of law or regulation.
313. While, as noted, there is no reason to doubt that currently the Director acts in an independent
capacity, there appeared to be little in practice which safeguards this situation for the long term.
The evaluators advise that the efficient working of the FIU as an independent unit, at present
would be assisted if the powers and duties of the FAU and its Director (and his role and
responsibilities under the Ministry) are formalised within the AML/CFT Law or a by-law.
314. According to The Czech authorities, there have been several instances when the Minister has
modified the structure of the FAU on the basis of the FAU Director’s proposal, the lack of a clear
statement of the role and independence of the FAU remains a concern.
315. With regard to the FAU’s Human Resources, The Czech authorities state that the Director of the
FAU applied for additional staff (nine analysts and one inspector). According to the procedure in
place, the Ministry authorises the recruitment but the Director of the FAU selects and appoints the
new staff.
316. The FAU’s total financial budget is decided at ministerial level. Cost of the personal are paid by
the Ministry of Finance, from the overall budget of the Ministry, while dedicated budget items,
73
mainly for IT purpose, are decided by the FIU. The following table indicates the main costs related
to IT:
Table 14: FIU’s IT costs
Hardware
Software
Operation costs
ESW/FIUNet
Total EUR
2008
18.357
27.133
33.067
7.626
86.183
2009
36.126
115.227
36.387
3.897
191.637
2010
33.657
52.595
30.580
8.982
125.814
317. The Czech authorities indicated that the database of the Ministry (FAU) is not connected to the
intranet of the Ministry (FAU) nor to the Internet as provided for by Section 31 paragraph 5 of the
new AML/CFT Law. Access to the premises of the Ministry (FAU) is restricted to staff holding a
badge.
318. The obligation of confidentiality and its exceptions are defined in the Sections 38 and 39 of the
new AML/CFT Law. Ministry (FAU) personnel shall keep confidential all facts related to STRs
and the subsequent investigations, as well as any other action undertaken by the Ministrry (FAU).
The obligation of confidentiality remains even if the staff member is transferred to another
assignment, terminates his/her employment or other contractual relationships (Section 38). There
are some exceptions to the principle of confidentiality listed in Section 39 of the new AML/CFT
Law.
319. The evaluators were informed that the Minister of Finance and his/her Deputies do not have
access to the elements of the files of the Ministry (FAU) but there is neither a provision in law in
this respect, nor any sanction (penal, civil or administrative) applicable.
320. Section 31 paragraph 4 of the new AML/CFT Law indicates that “The Ministry shall maintain,
and publish at least once a year on its website, statistical reports on effectiveness and results of
measures against the legitimisation of proceeds of crime and financing of terrorism.” The
evaluators were informed that the Ministry (FAU) regularly publishes annual reports on the
website of the Ministry of Finance (statistical data, typologies, trends and information about its
activities are provided).
321. The Ministry (FAU) has been a member of the Egmont Group since 1997. It currently has two
representatives in Egmont Working Groups (Operational Working Group and IT Working Group).
322. Section 33 of the new AML/CFT Law reads as follows:
(1) In the scope set out by an international treaty by which the Czech Republic is bound, or on
the principle of reciprocity, the Ministry shall co-operate with third country authorities and
international organisations of the same jurisdiction, in particular in the provision and
obtaining information to deliver on the purpose of this Act.
(2) Provided that the information is used exclusively for the purpose of this Act and is
protected at least in the scope laid down in this Act, the Ministry may co-operate also with
other international organisations.
74
323. The policies and procedures adopted by the FAU are in line with the international standards and
the co-operation in terms of disclosures received and provided is satisfactory.
324. The Ministry (FAU) co-operates with its foreign counterparts on the basis of international treaties
or on the principle of reciprocity. International information exchange is carried out according to the
Statement of Purpose and Principles for Information Exchange Between Financial Intelligence
Units.
Table 15: Overview on the international information exchange:
2005
2006
2007
2008
2009
1Q2010
Requests sent
69
77
66
59
72
14
Requests received
130
128
133
165
142
22
325. The statistical data on spontaneous exchange of information have been monitored since 1 January
2010. During the first quarter of the year 2010, the Ministry (FAU) received 7 spontaneous
information from abroad and sent 5 spontaneous information abroad. The Czech authority, while
not providing specific data, declared that the average time of response is in line with the Egmont
Group standards (one month).
Diagram 3: FAU structure, funding staffed technical resources
The Minister of Finance
The Deputy Minister of Finance
Head of FAU
Secretariat
International and legal
division
Analytical division
Supervisory division
326. The Ministry (FAU) has three divisions: the International Co-operation and Legal Division
(international information exchange, international sanctions, AML/CFT legislation), the Analytical
Division (analysis of STRs) with an IT Subdivision and the Supervisory Division (supervision on
obliged persons).
327. The FAU staff members are 28, employed of the Ministry of Finance. The Czech authorities have
also indicated that the FAU staff (except support staff) hold university degrees in law or economics
as follows:
• International Co-operation and Legal Division: 3 staff members hold a law degree, 1 has an
economics degree, 1 has a political science degree;
• Analytical Division: 11 staff members hold an economics degree, 1 a law degree and 3 are IT
specialists;
• Supervisory Division: all 4 staff members hold an economics degree.
328. The FAU staff is trained twice a year (3 days trainings) on issues relating to STR analysis, new
ML and TF trends and typologies, co-operation with other supervisory bodies, co-operation with
the police, criminal investigation, new legislative initiatives (both national and international). The
trainers are from the law enforcement authorities (police, prosecutor’s offices), the Czech National
Bank, and other supervisory agencies involved in AML/CFT surveillance.
75
329. The staff of the law enforcement authorities and FAU has appropriate systems of regular training.
The information on ML and TF methods, techniques and trends is disseminated.
330. The authorities have indicated that the main Ministry (FAU) counterpart within the law
enforcement authorities is the Unit for Combating Corruption and Financial Crime: criminal
complaints are sent to the AML Division of the UCCFC, but the FAU also co-operates with the
Organised Crime Unit of the Czech Police, in particular for terrorist financing cases, where
“Terrorism and Extremism Division” is located. The latter is in charge of receiving cases related to
TF.
331. A protocol between the Ministry of Finance and the Ministry of Interior is the framework of the
co-operation between the Ministry (FAU) and the police, which consists of exchange of
intelligence, regular consultations on individual cases, as well as an annual assessment of the
efficiency of the co-operation. FAU can obtain information, about penal records, indictments,
persons that have been under investigation, or even those who are currently being investigated at
that moment. Requests to police are sent through Moneyweb. Police will take an average period of
2 or 3 days to send their response, in urgent cases (e.g. in which the transaction has been suspended
by the bank) in hours. Furthermore, according to the authorities, since 2009 the FAU has sent a
copy of the cases referred by the police to the High Office of Prosecutors for information.
332. The current Director of the Ministry (FAU) is from law enforcement and he is seeking to
enhance co-operation between the FAU and law enforcement to impose the overall results of law
enforcement in the AML/CFT sphere. Nonetheless, the FAU at the time of the onsite visit, did not
appear to be receiving regular systemised feedback on all the disseminations they made to law
enforcement and information was lacking on which (if any) STRs had resulted in major ML
prosecutions. As noted elsewhere in this report, the major impression was of the ML cases being
merged with other cases rather then being pursued in their own right (which may itself be demotivating for the Ministry (FAU)).
333. Since 2009 the criminal complaints are sent once a month to the office of the Prosecutor in order
to increase the co-operation between the competent authorities and in particular to follow-up the
police forces’ activity.
334. The Ministry (FAU) should consider to adopt some of the following instruments: special
confidential reports on ML/FT patterns, dedicated seminars and “case by case” feedback.
Table 16: STRs received, their analysis and dissemination
Receipt of STRs
Disclosures
received
2 Financial entities
0
Professionals
0
8 Other DNFBP
2.090
-
Analysis:
Collection of Data by FAU
Dissemination:
Outcome of the Analysis
Cases
opened
Requests
to
reporting
entities
Request
to police
Requests
to foreign
FIUs
Cases closed
after the
analysis
Criminal
Complaints
Referrals to
AML Div.
Disclosures to
Tax Authority
or to Custom
Administration
1.722
1.236
1.244
59
1.513
78
135
230
74,22%
Total STRs
2.320
2 Financial entities
0
Professionals
0
9 Other DNFBP
1.932
Total STRs
2.224
73,92%
I Financial entities
317
368
3
1.644
3,4%
1.674
1.419
72
1.242
191
182
289
8,6%
1.127
260
76
14
188
73
65
Receipt of STRs
Disclosures
received
Q Professionals
2
0
1 Other DNFBP
0
Total STRs
Cases
opened
Analysis:
Collection of Data by FAU
Requests
to
reporting
entities
Request
to police
Requests
to foreign
FIUs
Dissemination:
Outcome of the Analysis
Cases closed
after the
analysis
Criminal
Complaints
Referrals to
AML Div.
Disclosures to
Tax Authority
or to Custom
Administration
1
73
391
94,12%
18,7%
335. The evaluators found that all STRs received are analysed. It will be noted that there is a
difference between “disclosures received” and “cases opened”. The evaluators were advised that
the difference relates to disclosures received which are merged with other cases and new cases
opened. The figures also indicate that the percentage of criminal complaints referred to the AML
Division of the UCCFC compared with the cases opened. These numbers clearly indicate an
increase of the referrals to the Police (3.4 % in 2008; 8.6% in 2009 and 18.7 % at 31st March
2010).
336. While these figures, related to the analysis of the cases by the Ministry (FAU), show that the
latter often requests assistance from the Police and additional information from the obliged entities,
the assistance from foreign FIUs is requested only in a few cases. This may be due to the fact that
most of the analysed STRs mainly involve proceeds domestic cases perpetrated (and thus,
laundered) in the Czech Republic.
337. This data also indicates that the Ministry (FAU) requests information from Police Forces going
behind the mere financial analysis of the movement of funds, which is a typical function performed
by an administrative FIU. This is appreciated as the Unit is doing its best to obtain all the
information necessary to perform its functions and give an “added value” to the criminal
complaints.
338. The Ministry (FAU) is vested with several functions prescribed both by the new AML/CFT Law
and the International Sanctions Act and acts in a proactive way by assisting counterparts and
domestic authorities (in particular, police forces and prosecutors). Nevertheless the issues of
independence and operational autonomy and of human resources are crucial to proper performance
of the functions assigned.
339. The effectiveness of the Ministry (FAU) could also be affected negatively by decisions at
ministerial level which may adversely impact on the organisation: budget and other relevant issues
(appointment of the director and staff etc.) for the Ministry (FAU).
340. The confidentiality of the cases investigated by FAU could be infringed by the mandatory
requirements for Ministry (FAU) to use Chambers in order to obtain additional information on
STRs.
341. The procedure of the FAU to copy the referrals to the prosecutorial authority could increase the
effectiveness of the reporting system and the analysis performed by FAU.
2.5.2
342. The fact that the status and function of the Ministry (FAU) is not defined in a separate legislative
act or provision is of concern to the evaluators. This is an issue already raised by the evaluators in
77
the 3rd round. However, in the meantime, The Czech authorities, despite having amended the
AML/CFT Law, did not take into consideration that recommendation.
343. The Ministry (FAU) is not only vested with functions assigned by the new AML/CFT Law, but
also co-operates on a “case by case” basis with several domestic authorities (Police and Judicial
Authority).This cooperation is producing positive results and should be continued.
344. The Ministry (FAU) staff is well trained and committed but considering the scope of functions of
the Ministry (FAU) the authorities could consider increasing the staff to ensure that the Ministry
(FAU) properly performs its functions, especially the function of supervision.
345. Over the last two years the number of cases notified by the Ministry (FAU) to the Police has
increased as shown in the chart above and it appears that the FAU and the police co-operate on
individual cases. Because of the legal provisions requiring reports also to be sent to the tax
authorities, a significant number of reports are sent there once the FAU establishes that another
crime has not been revealed. The FIU should nonetheless ensure that ML/FT remains its major
mission and keeps records of the predicate offences (where known) in FAU reports sent to the
Police, as it was unclear to the examiners what was the most important (non tax related) predicate
offence disclosed by the FAU to the authorities. It is also commendable that the Ministry (FAU) is
aiming to ensure that the cases referred to the police result in actions. The evaluators welcome
Ministry (FAU) efforts to maintain a continuous dialogue with the private sector and the cooperation provided to foreign counterparts.
346. It is therefore recommended:
•
•
•
•
•
2.5.3
to consider introducing an explicit reference to the FAU in the AML/CFT legislation as
recommended in the 3rd MER;
to strengthen the independence and autonomy of the Ministry (FAU) by amending the
AML/CFT Law or issuing a decree to govern the main aspects of the activities of the
Ministry (FAU) (the appointment and term of the Director and basis on which he can be
removed, recruitment and management of staff, budget, organisation and security);
to ensure that there is no over-emphasis in FIU analyses on tax related offences at the
expense of other predicate offences;
the FAU should consider keeping records of the predicate offences, if sufficiently identified
at that stage, in the reports disseminated to law enforcement;
to consider extending the use of “Moneyweb”;
Compliance with Recommendation 26
Rating
R 26
LC
Summary of the factors underlying rating
•
•
The independence and autonomy of the Ministry (FAU) is potentially
limited by the powers and functions of the Ministry (and Ministers) ;
The width of the reporting obligation potentially leads to an over
concentration on tax issues in FAU work;
78
2.6
Law enforcement, prosecution and other competent authorities – the framework
for the investigation and prosecution of offences, and for confiscation and
freezing (R.27)
2.6.1
Recommendation 27 (rated C in the 3rd round MER)
347. Until 2006 the Illegal Proceeds and Tax Crime Unit (the so-called “Financial Police”) was
responsible for investigating ML/FT offences then that Unit was abolished and the personnel were
transferred to the Unit for Combating Corruption and Financial Crime (UCCFC). The evaluators
requested information about this decision and, according to the authorities, this was simply part of
a general reorganisation of the law enforcement bodies.
348. As a result, the Anti Money Laundering Division of the UCCFC (AML Division) of the Police
Forces has become the counterpart of the FAU. The latter refers criminal complaints or
information involving possible elements of money laundering to this AML Division.
349. Currently the binding instructions of Police President N° 30/2009 specifies the Unit for
Combating Corruption and Financial Crime as responsible for inquires, verifications and
investigations of criminal offences committed in relation to the legalisation of the proceeds of
criminal offences where supervision is performed by the High Public Prosecutor’s office (with the
exception of counterfeiting of money or other means of payment), intentional criminal offences
related to corrupt conduct if a judge or a public prosecutor is suspected and criminal offences of
bribery or misuse of public official committed in relation to the performance of duties relating to
the position. According to an agreement (which has not been seen by the evaluators) between the
Ministry of Finance and Ministry of Interior, the FAU is responsible for submitting to this Unit all
criminal complaints. Cases or information involving possible elements of terrorist financing are
referred by the FAU to the “Terrorism and Extremism Division” of the “Organised Crime Unit”.
350. The following chart illustrates the organisational structure of the Czech Police Force and where
the main AML/CFT law enforcement competent authorities are allocated.
Diagram 4: Organisational structure of the Czech Police
79
351. According to the internal procedures of the Police Force, the “Unit Combating Corruption and
Financial Crimes”, the “Anti-Drug Unit” and the “Organised Crime Unit” are entrusted with the
investigations of the most complex money-laundering cases, while money laundering cases with a
lower level of complexity are investigated by the specialists in the regions.
352. The Czech authorities informed the evaluators that these law enforcement units include around
210 specialists designated for “financial inquiries” and investigations of money laundering cases.
353. These financial specialists carry out their activities in working teams according to the provisions
set out in the Decree of the Deputy Police President for Criminal Police and Investigation Service
No. 14/2009 “On Financial Inquiries”.
354. From the time of the commencement of actions in criminal proceedings (section 158(3) of CPC,
the so called “detection phases” of investigations, as described below) financial specialists are
required to seize proceeds generated by illegal activities according to the provisions set out in
section 2 of that Decree. In order to properly perform the function assigned, financial analysts use
the ALPHONSE IT system, which keeps track of the actions taken and the results obtained.
355. The UCCFC is organised in Departments and Regional Branches. The whole UCCFC is staffed
with almost 400 police officers and 65 civil employees. The Anti Money Laundering Division of
the UCCFC is incorporated in the Department of Tax Fraud and Money Laundering and is staffed
with 12 police officers.
Diagram 5: Organisational structure of the Unit Combating Corruption and Financial Crime
356. The Czech authorities have indicated that, as consequence of the new organisational structure of
the Police Forces indicated above, 22 specialists for “financial inquires” are deployed in all
departments and regional branches of UCCFC.
357. The Czech authorities have also indicated that, for specialists in “financial inquiries” at UCCFC,
the minimum length of service is 7 years, and a university degree in a relevant field is an essential
requirement. There are also prescribed follow-up courses, which every specialist is required to
attend including on AML techniques.
80
358. The Unit for Combating Corruption and Financial Crimes has also explained that it acts as the
designated Asset Recovery Office (pursuant to FD 2007/845) and participates in Europol´s
Analytical Work Files (AWFs) dedicated to cross EU suspicious transactions.
359. According to the Act on Police (AoP) N.273/2008 as amended and Criminal Procedure Code
(CPC) Act N.141/1961 as amended, the activities of the Police Force may be distinguished in the
following phases:
a. “Collection of evidence phase” on criminal activities under Section 69 of the AoP and
Section 158 (1) of the CPC, where operative measures are applicable under several
sections of the AoP by Police Force;
b. “Detection phase”, when the Police Force initiates a criminal proceeding for clarifying
and verifying the circumstances reasonably indicating that a criminal offence has been
committed as prescribed by section 158 (3) of the CPC;
c. “Investigation phase”, when the Police Force collects evidences and sends documents
to the Prosecutor for indictment, as prescribed by section 160(1) and 176 of the CPC.
360. In order to perform properly the phases indicated in letters b) and c), the Police Force uses the
powers assigned by AoP (sections 61, 66, 68, 73, 74, 75, 76 and 89), as well as provisional
measures indicated in sections, for example, 8, 78, 79, 83, 86, 87, 88 and 158d of the CPC.
361. The following table illustrates the number of cases and persons investigated by the Czech Police
Force on “legalisation” offences (Sections 216 and 217of the Criminal Code, both intentional (216)
negligent (217)). These statistics cover investigations disaggregated according to the phases
described above, carried out by UCCFC, Organised Crime Unit and Anti Drug Unit both at
national and regional level. These figures also include cases originated by criminal complaints sent
by FAU to AML Division of the UCCFC.
Table 17: Cases and persons investigated by the Czech Police Force on “legalisation” offences
Investigative phases
Detection phase
(Section 158.3 of the CPC)
Investigation phase
(Section 160.1 of the CPC)
Sent to the Prosecutors for Indictment
(Section 176 CPC)
Indictments for legalisation offence
(Section 216 CC)
Indictments for other offences
2008
Cases
Persons
2009
Cases
Persons
I Q 2010
Cases Persons
37
N/A
59
N/A
26
N/A
17
19
26
24
9
8
21
N/A
19
N/A
3
N/A
N/A
25
N/A
24
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A: Not available
362. The table above is not fully complete due to the fact that the Police do not keep detailed statistics
for each of the investigative phases. In particular, while figures on number of “cases” are available,
the related information on numbers of persons involved in those cases are not available (N/A). This
could be, to some extent, acceptable in the “Detection phase”, but not when the cases are sent to
the prosecutors for indictments. Moreover, Police seem not to receive any complete feed-back
information on indictments.
363. As regards the follow-up investigative activities originated by criminal complaints sent by the
FAU to the Anti-Money Laundering Division (hereafter “AML Division”) of the Unit for
Combating Corruption and Financial Crime, the table below illustrates the main results.
81
Table 18: Criminal complaints sent by the FAU to the AML Division
2008
2009
IQ2010
78
191
73
Cases opened by AML Division of which:
71
175
63
- Cases under investigation at national level
30
123
40
- Cases sent to the regional polices
41
52
23
Criminal Complaints sent by
Division of which:
FAU to the AML
364. The authorities have indicated that for 2009, out of the 191 referrals from the FAU to the AML
Division, 175 cases were initiated as “stand alone cases” (the difference between 191 and 175 is
due to the fact that some referrals were incorporated into other ongoing investigations or merged
together). Out of 175 cases, 123 were investigated at central level and the remaining 52 cases were
sent to the local police departments. The cases investigated at the central level are those which
appear to contain elements of the money laundering offence according to the findings of the
analysis carried out by the AML Division, whereas those referred to the regional police
departments are largely related to other sorts of offences.
365. Hence for 2009, according to the information provided by the AML Division, of the 123
investigated cases, 37 were closed or merged, 55 cases were still under investigation by the AML
Division or not yet opened. In 31 cases criminal proceedings were instituted (i.e. “detection phase”,
under 158 (3) of the CPC) and 6 of them were at the stage of the investigation (i.e. “investigation
phase”, under 160 (1) of the CPC, which is when steps are taken for a specific offence in respect of
a particular person) where 6 persons are involved in money laundering). The table below illustrates
the results described.
Table 19: Follow up of the criminal Complaints sent by FAU to the AML Division
Criminal Complaints sent by FAU to AML Division
and follow-up initiatives
2008
71
2009
175
- Cases under investigation at national level
30
123
- Cases sent to the regional police
41
52
Cases at “Collection of evidence phase” - Art. 158 (1)
CPC
34
92
Cases at “Detection phase” – Art.158 (3) CPC
7
31
Cases at “Investigation phase” - Art. 160 (1) CPC
0
6
Cases where investigations have been suspended - Art
159a CPC
3
3
Cases sent to other police units
2
3
Cases sent to Prosecutor for indictment - Art. 176 CPC
0
2
Total number of criminal complaints
Cases remained in AML Division
366. In terms of the results obtained by the Police Forces, it is worth highlighting that in the years
2008 and 2009, out of 246 criminal complaints sent to the AML Division of the UCCFC by the
FAU only four (4) cases have been sent to the Prosecutors for indictments in respect of money
82
laundering. No information is available on the number of the persons involved in these two cases.
The evaluators have pointed out that the data given in this table is not consistent with data in the
MEQ as described under R.2.
367. In response to this, the Czech Police Forces authorities indicated that, on the basis of a survey
carried out on a random sample of cases, at least half of investigations for money laundering have
been indicted by the prosecutors for other offences (mainly for the predicate offences or
participation in the predicate offences) where the penal sanctions were higher.
368. The Czech authorities also emphasised the great efforts undertaken to seize property related to
illegal activities. However, the evaluators were not provided with data on ML seizure, as the
authorities do not keep such figures.
369. Police Forces have indicated that they do not collect any statistics on persons under investigation,
thus it is not possible to determine whether the investigations refers to organised group activities,
where, usually, several persons are involved. Additional information and data on these
investigations have not been provided by The Czech authorities.
370. According to the representatives of the Police Forces, the criminally generated proceeds are
mainly associated with drug trafficking, fraud, internet fraud and smuggling. Illegal profits are
usually layered in real estate investment, cars, boats, investments in securities and sometimes also
through the use of off-shore companies. During the on site visit representatives of the Police Forces
indicated to examiners some examples of connections between investigations conducted on
proceeds-generating offences and possible misuse of financial services to conceal the illegal profit
such as “exchange offices”, “money remittances” and “safety boxes services”.
371. Czech authorities indicated that their main goal on money laundering cases relates to offences
committed in relation to internet fraud that resulted in the seizure of real estate and vehicles or high
priced paintings. However, these results do not appear to be really oriented to the investigation of
complex money laundering cases.
372. As for special investigative techniques and postponement or waiving arrest, the provisions that
are now in place are the same that were in force at the time of the 3rd Round, as described
in paragraphs 418 to 426 of the 3rd MER. In that report it was noted that there was a willingness
at that time to limit the use of such operative police techniques (see footnote 64 of the 3rd MER),
but no amendments to these provisions have been adopted and the Police have indicated that they
still widely use these instruments. However, statistics are not kept on the use of these techniques.
373. The FATF standards request the existence of permanent or temporary groups specialised in
investigating the proceeds of crime (financial investigators). An important component of the work
of such groups or bodies is focused on the investigation, seizure, freezing and confiscation of the
proceeds of crime, and deciding whether to begin co-operative investigations with appropriate
competent authorities in other countries, including, where appropriate, the use of special
investigative techniques, provided that adequate safeguards are in place.
374. The Czech authorities indicated that in the framework of the Czech Police there exists the special
division for searching for criminal activities; there are also special squads and teams at district
level. On the basis of the support of EUROJUST and EUROPOL it is possible to organise
co-operative investigation teams. The application of investigative techniques is conducted on the
basis of the national legislation of the jurisdiction in which they are used.
83
375. The evaluators were informed that financial investigations are carried out by the Police Forces as
“ancillary inquiries” related to the crimes under investigation and that there are no specialised
groups investigating the proceeds of crimes.
376. The evaluators were informed about a Joint Investigation with Slovakia under section 442-444
CPC between domestic and foreign Police Forces, and that a combined investigation with national
police forces of different units had also been carried out on tax evasion cases.
377. The evaluators were informed that FAU and Police Forces meet regularly to discuss cases under
investigation and to provide support to each other. Nevertheless there are no regular and
interagency committees between competent authorities dealing with methods, techniques and
trends.
378. While the Police assert that there have been non STR related ML Police enquiries, no statistics or
concrete information about such investigations have been provided to the evaluators. The
evaluators were left with the impression that hardly, if any, ML/FT cases have been investigated on
the initiative of the Police Forces alone. A very limited number of cases were in the pre-trial
investigation phase for ML. The AML Division, which is the responsible unit for investigating
FAU disclosures, is not equipped with sufficient staff qualified in financial investigation. The lack
of education and training in tracing the funds in major proceeds-generating cases leading to
financial investigations for ML cases limits law enforcement capability.
379. Comprehensive feedback on investigations by the Police to the FAU, which previously was
available in approximately 30% of the cases, is now increasing. The information is useful for the
FAU and for the whole AML/CFT system.
2.6.2
380. Given the fact that there appear to be few law enforcement investigations that have resulted in
police-generated ML prosecutions, efforts are required to strengthen the pro-activity and
investigative capacity of the Law enforcement agencies to become more specialised in
investigating the proceeds of significant crime. As noted elsewhere in this report, there is little
evidence of 3rd party/autonomous ML cases generated by police initiatives. Indeed the information
provided on predicate offences, and the incidence of self-laundering cases is very sparse.
The overwhelming impression is that ML is used for comparatively minor cases like car theft.
381. More investigators are required who are fully trained in modern financial investigative
techniques.
382. It is helpful that the FAU is trying to ensure that its cases notified to the Police Forces result in
action. To this end the Ministry of Finance and the Ministry of Interior have signed, on behalf of
FAU and Police Forces, a specific memorandum to increase “case by case” the effectiveness of
their respective actions.
383. The evaluators have been informed that in the past the FAU had only been receiving appropriate
and comprehensive feedback from Police Force in approximately 30% of the cases (where the
replies were limited to file “closed” “open“ or “still to be checked”) while Police Forces are now
encouraged to provide feedback with added value in order to assist the FAU in its functions.
84
384. Compared to the 3rd round of evaluations, the Police Force have been recognised for increased
professionalism in their investigations by the Prosecutors, but little success has been achieved in
serious ML cases.
385. Police Forces reported to the evaluators anecdotally about some financial investigations on illicit
profits but no comprehensive figures have been provided to the examiners.
386. The Czech authorities should enhance the investigative role of the Police in generating ML
enquiries on their own initiative, strengthen the AML Division in order to increase the
effectiveness of the notifications received by the FAU and develop an inter-agency operational
committee that will develop trends and methods useful for the investigative bodies. This point is
taken up in R.31. As noted in R.1 earlier in this report The Czech authorities need to analyse why
there appears to be such a major discrepancy between the types of ML cases being prosecuted and
the incidence of ML in the country.
387. The lack of data on Police activities in this area does not help the evaluators to make a full
assessment of what law enforcement may be doing in AML/CFT at present. It is appreciated that
some ML investigations can take years to produce results. In order to ensure that such
investigations are followed through (and properly resourced), it is necessary to maintain accurate
data on the status of all such investigations. While The Czech authorities maintain that their
impression is that cases are being taken forward, the lack of hard data means that their
effectiveness in this area is not demonstrated.
388. The Czech authorities should strengthen the AML Division of the Police Forces in order to
increase the effectiveness of the notifications received by FAU and develop an inter-agency
committee that will develop trends and methods useful for the investigative bodies.
389. More seminars on AML/CFT investigations, prosecutions and judgments would be welcome to
ensure that all key players are fully aware of the importance of financial investigation, confiscation
and autonomous ML.
2.6.3
Rating
R.27
PC
• Few successful police-generated ML investigations;
• Lack of coordinated actions among authorities (Police Forces and
Prosecutors);
• Qualified staff in financial investigation have not yet obtained satisfactory
results;
• Little evidence that ML is being tackled effectively in respect of major
proceeds-generating offences;
• Lack of robust and accurate data, figures and any other relevant
information useful to assess the activity of the Police Forces (both in term
of quantity and quality of the workload).
85
3.
PREVENTIVE MEASURES - FINANCIAL INSTITUTIONS
3.1
Risk of money laundering / financing of terrorism
390. The evaluators were informed that there was no specific collective AML/CFT risk assessment
undertaken since the last evaluation. The general approach concerning risk has been described at
1.5c above, to which reference should be made.
391. During the 3rd round evaluation, the evaluators noted that although in general the customer
identification procedures (but not the full CDD measures) were mostly in place, there were also a
number of shortcomings. They therefore recommended:
- the introduction of full CDD requirements in the AML/CFT Law (including on-going due
diligence and know-your-customer, risk-based approach, consequences of incomplete
CDD measures and application of CCD requirements to existing customers etc.), with
appropriate guidance, beyond those measures applicable to identification only;
- to solve the inconsistencies between the banking regulations and the AML/CFT Law on the
issue of CDD measures on the occasion of operations with bearer passbooks and the
identification/CDD process guaranteed no matter what the threshold is;
- to require by law the identification of beneficial owners and to obtain information about the
owners of all types of legal entities;
- to amend the legislation in order to require financial institutions to identify the originator
and the beneficiary of funds transfers with at least the following three data: name, address,
account number and to require also the renewal of customer identification and verification
when doubts arise about the identity of the customer or about veracity or adequacy of
previously obtained customer identification data.
3.2
Customer due diligence, including enhanced or reduced measures (R.5 to R.8)
3.2.1
392. Customer due diligence does not only incorporate the establishment of the identity of the
customer, but also includes the monitoring of the account activity to determine those transactions
that do not conform with the normal or expected transactions for that customer or type of account,
and complemented by regular compliance reviews and internal audit.
393. CDD requirements are generally included within the requirements of Section 8 and 9 of the
AML/CFT Law or covered by CNB Decree 281/2008 on internal principles and procedures.7
394. In respect of enhanced customer due diligence, there is a requirement for additional processes to
mitigate risks, including certification of documents presented, requiring additional documents to
complement those required under CDD, approval for opening a business relationship or significant
transactions by senior management and regular reviews.
395. Section 9 of the AML/CFT Law does not in fact refer to high risk customers, except for
politically exposed persons while the requirements under Section 9 do not incorporate many of the
7
CNB Decree 281/2008 is implemented as per Section 56 of the AMLCFT Act 2008.
86
additional enhanced customer due diligence requirements (e.g. certification of documents
presented and additional documentation, approval process etc).
396. As noted in the 3rd Round Evaluation Report, an amendment to the Civil Code stipulated that by
the 1 January 2001 deposit passbooks, deposit certificates or other forms of deposits may be issued
or negotiated only on names (Sections 782, 786 (6), 787 (3) of the Civil Code). Existing bearer
passbooks were abolished by an amendment to the Act on Banks of 31 December, 2002 with the
right of the depositor to the repayment of the balance of discharged deposit claim to become
statute-barred by the end of 2012. According to The Czech authorities, about €80 million were still
outstanding as at the end of 2009.
397. Section 7 (2) (g) of the AML/CFT Law requires obliged entities to always identify the customer
on withdrawal of the final balance of cancelled bearer passbooks.
398. According to the authorities, accounts in fictitious names are prohibited by Article 782 and 783
of the Civil Code which provide that passbooks may only be issued in the form of name-passbooks
which has to include details regarding name, surname, address, birth date or legal entity
identification. However, in the opinion of the evaluators this does not explicitly address the issue
of prohibiting accounts in fictitious names, particularly as a number of interviewed institutions
showed some concern regarding false identity cards.
399. The Czech authorities stated that numbered accounts do not exist in the Czech Republic. But
there is no legal requirement that, in such an event, obliged institutions should obtain the required
information in full compliance with the FATF recommendations although this may be implied
under Section 7 (2) (b).
400. Companies with bearer shares and silent partners exist within the Czech Republic. There is no
reference in the legislation nor is there guidance in such cases on how to obtain satisfactory
evidence of their identity.
Customer due diligence
401. Section 7 of the AML/CFT Law requires identification when:
•
•
•
entering into a business relationship (Section 7 (2) (b). Section 4 (2) defines a business
relationship as a relationship established to handle assets of clients or to provide repetitive
transactions or service;
carrying out a transaction exceeding €1,000 unless stipulated otherwise by the AML/CFT
Law (Section 7 (1)). Section 4 (1) defines a transaction as an interaction that leads to the
handling of property or the provision of services. Section 34 refers to the granting of
exemptions, upon request to the Ministry in the event that an obliged entity transacts only
occasionally or in a very limited scope, and in a way that precludes or significantly reduces
ML/FT risk, from being considered as an obliged entity. This is conditional in that the
activity is a non-core activity, the total annual revenue from this activity does not exceed 5%
from the total annual revenue of the obliged entity and it is ensured that the value of an
individual transaction or of multiple transactions with one customer shall not exceed €1,000
in the period of 30 consecutive days. For such exempted obliged entities, there is no
obligation to carry out any identification;
as per Article 5(2) of the EU Regulation 1781/2006, directly applicable within the Czech
Republic, the Payment Service Provider has to verify the complete information on the payer,
before transferring the funds from reliable and independent source in respect of wire
transfers of €1,000 or more;
87
•
there is a suspicion that a transaction is suspicious (Section 7 (2) (a) regardless of the €1,000
threshold (Section 7 (2).
402. The obligation to renew the CDD measures, when doubts arise as to the veracity or adequacy of
the previously obtained customer identification data, is said to derive from Section 6 (1) (i) which
includes this issue as an example of a suspicious transaction as well as Section 15 (1) of the
AMLCFT Act 2008. However, in the evaluators, opinion, the inability to complete CDD and the
requirement for financial institution to undertake CDD when there are doubts about the veracity or
adequacy of previously obtained are different. Although it may have been the intention of the
authorities to cover the aspects under R5.2 (e) through Section 6 and Section 15 of the AMLCFT
Act 2008, this is not clearly obvious and subject to interpretation. Furthermore, it was unclear to
the evaluators how widely this CDD obligation on its own was understood by the reporting entities.
403. CDD is required for transactions above €15,000 by the AML/CFT Law. In respect of linked
transactions, Section 54 (3) of the AML/CFT Law requires that a payment which is divided into
several installments, the value of the transaction shall be calculated as the sum of these
installments, provided they are related.
404. The 3rd round evaluation report commented that there was a difference between the stipulated
amount of minimum of €1,000 for identification purposes specified in the AML/CFT Law and
Article 37 (1) of the Act on Banks which stipulates that:
A bank shall demand proof of a client’s identity for each transaction exceeding CZK 100,000
and when renting safe deposit boxes.8
405. This was addressed by amendment to the Act on Banks (section 37) through law number
254/2008 Coll. effective since 1 September 2008 which reads as follows:
Banks shall provide services to their clients on a contractual basis. A bank may refuse to
provide services should the client remain anonymous.
406. However banks have also to comply with the AML/CFT Law and therefore are obliged not to
transact with anonymous clients.
407. Furthermore, as also identified in the 3rd round evaluation report, there remain different
identification requirements for opening deposit accounts with banks between the AML/CFT Law
and Article 41c of the Act on Banks. The latter is in respect of deposit compensation scheme
requirements.
408. As per Act no. 57/2006 Coll., on amendment of the laws related to the integration of financial
market supervision, the CNB is responsible for the supervision of securities trades.9 The evaluators
were informed that securities traders are regulated by the AML/CFT Law in terms of customer
identification and due diligence.
409. The CNB informed that it carries out on-going on-site inspections specifically for AML/CFT
purposes at credit institutions and insurance companies (though generally within full on-site
inspections) but incorporates AML/CFT related inspections for other financial institutions within
the general supervisory inspections. During these inspections, the CNB verifies the fulfillment of
identification and CDD responsibilities as well as other AML/CFT responsibilities.
8
9
Circa CZK/€ 25 = € 4,000.
The Securities Centre ceased operations in July 2010.
88
410. Section 13 of the AML/CFT Law provides for exceptions from the identification and due
diligence requirements in the event of specified cases. At the same time, Section 7 (1) of the
AML/CFT Law requires the identification of customers prior to transactions above €1,000 (unless
stipulated otherwise in the Act).
411. Section 5 of the AML/CFT Law requires identification both for natural persons as well as legal
persons. The specified requirements are:
•
•
•
in the case of a natural person, all names and surnames, a birth identification number or date
of birth), a place of birth, sex, permanent or other residence and citisenship;
for a natural person who is an entrepreneur, the business name, an appendix to the business
name or any other identification features, place of business, and business identification
number; and
in respect of a legal person, the company name, including its appendices or other
identification features, company’s official address, business identification number or a
business identification number given under foreign law. The business identification can be
obtained from the Company Register of Entrepreneurs Register (Commercial Register), the
Foundation Register or the Register of Beneficial Societies. During on-site interviews, some
financial institutions informed that they also obtain identification requirements in respect of
legal persons from the Electronic Signatures Act 227/2000 Coll. of 29 June 2000. However,
the evaluators were not in a position to verify the requirement under the Electronic
Signatures Act 227/2000 Coll. Moreover, reliability of data entered can be suspect as it can
be entered without verification. This can be subsequently rectified through a court decision.
Furthermore, many interviewed institutions considered that the public service provided to
identify and retrieve information in respect of legal persons was quite poor and they would
welcome more support.
412. There is no specific requirement in the AML/CFT Law for obliged entities to verify the customer
identification using reliable independent source documents.
413. The Czech Republic appears to have both the concept of "sleeping partner" and "limited
partnership". In the concept of a "limited partnership" the partnership usually operates under a
partnership name and has its obligations guaranteed by the unlimited and joint and several liability
of one or more partners - known as the general partners - and by the liability, limited to the
amount, if any, unpaid on the contribution (such contribution could be in the form of shares) of one
or more partners - known as the limited partners. Moreover, a limited partner is usually prohibited
by law from performing any act of administration or from transacting business on behalf of the
partnership - unless acting under a power of attorney given by the other partners for specified acts
or transaction - and hence the reference to the limited partner as the "sleeping partner". However,
limited partners are normally registered. “Silent partners” in the Czech Republic are not registered
and thus the identification of such owners is an issue.
414. There is no reference in the AML/CFT Law that identification is required also for legal
arrangements. There is no explicit requirement that financial institutions are required to verify the
authority of persons purporting to act on behalf of other customers, names of trustees (for trusts)
and power to bind a legal person. However, the 3rd round evaluation report noted that the AML Act
requires identification of authorised persons in the case of a transaction in the event that:
•
•
the customer is represented by a power of attorney;
and when a person is not acting on his own account.
89
415. This was considered as equivalent to requiring the verification of authority of persons purporting
to act on behalf of other customers. There are no reasons to dispute this conclusion.
416. Section 8 of the AML/CFT Law stipulates the required identification measures. Section 8 also
stipulates that obliged entities should verify the details with the identity card, (in the case of a
natural person) or business registration documents (in the case of a legal person).
417. The CNB has issued an Official Information of the Czech National Bank of 26 May 2009 on
certain requirements for the system of internal principles, procedures and control measures against
the legitimisation of the proceeds of crime and financing of terrorism. This information refers
financial institutions to recognised AML standards and is intended to facilitate searches of the
relevant websites and their content. But, effectively, there are no supporting guidelines issued by
the authorities to provide further assistance to obliged entities on customer identification beyond
that stipulated in the AML/CFT Law and the reference included within the Official Information
issued by the CNB.
418. Moreover, the required identification information appears to be somewhat basic and fall short of
those recommended in the General Guide to Account Opening and Customer Identification issued
by the Basel Committee on Banking Supervision (BCBS). This is particularly relevant since during
on-site interviews, some institutions expressed some concern that identification documents may be
false.
419. Moreover, within the Czech Republic there are still a number of companies with shareholders and
silent partners who are not registered anywhere. Some prosecutors also intimated that the latter
structures are easy avenues for processing illegal monies (white horses). Hence, additional
verifications, as suggested in the BCBS guidelines, could address some of these concerns and
enhance the identification measures. In particular, telephone numbers, e-mail address, occupation,
public position held and/or name of employer while additionally for legal persons, tax
identification numbers and an original or certified copy of the Certificate of Incorporation and
Memorandum and Articles of Association, documents confirming continued existence of the legal
person etc would provide additional safeguards. Moreover, the AML/CFT process would be
benefit by taking into account (amplified through specific guidelines) paragraph 11, 14 and 20 of
the BCBS guidelines.
420. Section 4 (4) of the AML/CFT Law defines a beneficial owner as:
a) for an entrepreneur:
1. a natural person, having real or legal direct or indirect control over the management or
operations of such entrepreneur, indirect control shall mean control via other person or
persons,
2. a natural person, holding in person or in contract with a business partner or partners
more than 25 per cent of the voting rights of such entrepreneur; disposing of voting rights
shall mean having an opportunity to vote based on one’s own will regardless of the legal
background of such right or an opportunity to influence voting by other person,
3. natural persons acting in concert and holding over 25 per cent of the voting rights of such
entrepreneur, or
4. a natural person, who is, for other reasons, a real recipient of such entrepreneu’s
revenue,
b) for a foundation or a foundation fund:
1. a natural person, who is to receive at least 25 per cent of the distributed funds, or
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2. a natural person or a group of persons in whose interest a foundation or a foundation
fund had been established or whose interests they promote in case the beneficiary of such
foundation or a foundation fund is yet to be determined,
c) a natural person, in case of an association under lex specialis10, public service organisation,
or any other person and a trusteeship or any other similar legal arrangement under a foreign
law, who:
1. holds over 25 per cent of its voting rights or assets,
2. is a recipient of at least 25 per cent of the distributed assets, or
3. in whose interest they had been established or whose interests they promote, should it yet
to be determined who is their future beneficiary.
421. The above therefore excludes natural persons acting on behalf of beneficial owners who
themselves are natural persons and therefore the definition of Beneficial Ownership is not broad
enough as required by the FATF Glossary
422. For AML/CFT purposes, it is obviously necessary to establish whether a customer is acting on
behalf of another person, using the name of another customer or acting as a front. It is therefore
important not only to have satisfactory evidence of the identity of the intermediaries but also of the
beneficiary. The obligations within the AML/CFT Law are specified in:
•
•
Section 8 (1) requiring obliged entities to perform the first identification of a customer who
is a natural person as well as any natural person acting on behalf of a customer in personal
presence of the identified; and
Section 9 (2) (b) in respect of Customer Due Diligence, which, as noted previously, for The
Czech authorities this is equivalent to Enhanced Customer Due Diligence. Moreover, it is
only required in the event that the customer is a legal person (above 25% of voting rights or
distributable assets).
423. Section 9 (2) (a) (c) and (d) of the AML/CFT Law specify that customer due diligence entails
collection of information on the purpose and intended nature of the business relationship,
collection of information necessary for ongoing monitoring of the business relationship, including
scrutiny of transactions undertaken throughout the course of the relationship to ensure that the
transactions being conducted are consistent with the institution’s knowledge of the customer, their
business and risk profile, and monitoring of sources of funds. This is below the FATF requirements
as there is no explicit requirements that customer due diligence includes the verification of the
identity of the beneficial owner, using relevant information obtained from reliable sources, such
that the financial institution is satisfied that it knows who the beneficial owner is. Moreover, there
are also not sufficient guidance for obliged entities either to understand the ownership and control
structure of a customer or to determine the natural person that ultimately own or control the
customer and exercise ultimate effective control over a legal person or arrangement – as this is
limited by a 25% threshold of voting rights (Section 4 of the AML/CFT Law).
424. As noted above, the ultimate owner in respect of legal persons is limited to above 25% of shares
or distribution (generally in line with EU legislation). Furthermore, by virtue of Section 34 of the
AML/CFT Law, low-risk transactions can be exempted from any identification requirements,
which can result, in effect, in beneficial owners not being identified.
425. On the other hand, CNB Decree 281/2008 stipulates that financial institution compile and assess
a customer’s risk profile in the event that the customer’s ownership structure is non-transparent or
10
Section 20f and on, Civil Code Act No. 83/1990 Coll. on Public association, as amended.
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there are circumstances arousing suspicion that the customer is not acting on own behalf or is
seeking to conceal the fact that the instructions are on behalf of a third party. The evaluators were
informed that Decree 281/2008 was not applicable to all financial institutions under the supervision
of the CNB for the purpose of AML/CFT purposes11. In this respect, a non-transparent ownership
structure means a state whereby it cannot be ascertained who a customer’s actual owner is from an
extract of the commercial register or other equivalent record ; from another document by which
the foreign person was established and which contains all changes thereto; or from a credible
source on which an institution relies for good reason. In such cases, institutions are required to
define procedures to identify the risk factors.
426. Although the CNB Decree and the AML/CFT Law do not explicitly delineate any additional
procedures or identification requirement to determine the beneficiary owners, financial institutions
interviewed on-site all showed awareness of their responsibility to identify beneficial owners.
However, all expressed significant difficulties in carrying out this responsibility due to a number of
factors including:
insufficient understanding of what is required for identification of beneficiary owners. A non
bank financial institution stated that it was indeed very difficult to establish a beneficiary
owner. Some also stated that according to (verbal) instructions by the FIU their
responsibility stops at requiring clients to declare whether the direct customers are acting on
behalf of beneficiary owners or otherwise;
a perception that there is no need to carry out a search for the ultimate underlying natural
person behind the customer, and which can stop even at the level of a legal entity. Indeed
another non-bank financial institution’s representatives were somewhat uncertain whether
they had the right to ask questions to establish whether the monies belonged to the customer
or not, though they did ask for the origin of money and the purpose of the transaction if the
amount was €15,000 ;
the identification of beneficiaries requires identification and not enhanced due diligence
except in cases of high risk. There was little perception that the reliability of the
information/documents obtained should be verified against a secondary source;
as per Section 4 (3) (c) and (4) (c), the ultimate natural persons should be verified only if the
holding breached the 25% threshold; and
uncertainty to what is required in the case of bearer shareholders and silent partners.
427. Most considered that they need more explicit guidelines on beneficiary owners.
428. In the 3rd round MER, the evaluators noted that although this obligation was implied from the
CNB Provision N°1 and the Securities Act (but not in relation to insurance companies) there were
no requirements in the AML Act for financial institutions to obtain information on the purpose and
intended nature of the business relationship12. This has been rectified through Section 9(2) (a) of
the AML/CFT Law, which requires that the customer due diligence process entails the collection
of information on the purpose and intended nature of the business relationship.
429. In fact, interviewed institutions indicated that part of their information gathering process is to
obtain information on the purpose and intended nature of the business relationship. Indeed, the FIU
confirmed that, the majority of STRs are related to the collection of such information and comprise
mainly:
11
The evaluators were informed that Decree 281/2008 was not applicable to the issuers of electronic money (of
small extent); central depository; payment institutions; a provider of small extent payment services.
12
CNB Provision No 1 of 2003 was replaced by decree 247/2007 which in turn was replaced by the provisions
within the AMLCFT Act 2008 and Decree 281/2008.
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business accounts transfers into personal accounts;
internet banking transactions including credit cards fraud;
transactions without economic rationale;
account movements which did not match the financial position of the owner;
transfers to tax havens; and
tax evasion.
430. The 3rd evaluation had concluded that there were deficiencies in respect of this criterion. Now
Section 9(2) (c) of the AML/CFT Law stipulates that client due diligence entails the “collection of
information necessary for ongoing monitoring of the business relationship including scrutiny of
transactions undertaken throughout the course of that relationship to ensure that the transactions
being conducted are consistent with the institution’s knowledge of the customer, the business and
risk profile.” Section 9 (2) (d) covers the requirement regarding monitoring of sources of funds.
431. The requirement of financial institutions to keep up-to-date documentation in respect of the CDD
process and review existing records may be implied from Section 8 (6) which requires obliged
entities to check the validity and completeness of the customer’s identification data and
information gathered in the course of the due diligence process. Furthermore, the CNB Decree
281/2008 has specific requirements that during the course of contractual relations, information is
checked for validity and completeness and kept up-to-date. This is required for all business
relationships in order to determine whether the customer is a risk customer.
432. The Czech authorities also highlight that in respect of Section 9 (1) of the AML/CFT Law
financial institutions bind their customers to inform them about any changes concerning
identification data and documents necessary for due diligence. However, in practice, it is
impossible for financial institutions to ascertain that customers do in fact inform them of such
changes.
433. According to Section 9 (3) obliged entities are required to perform customer due diligence to the
extent necessary to determine the potential risk of legitimisation of ML/FT depending on the type
of customer, business relationship, product, or transaction. This is required in respect of a single
transaction amounting to €15,000 or more, a suspicious transaction, an agreement to enter into a
business relationship, an agreement to establish an account, an agreement to make a deposit into a
deposit passbook or a deposit certificate or any other type of deposit, agreement to use a safety
deposit box or an agreement on custody, a transaction with a politically exposed person and as part
of the business relationship. According to Section 9 (2) a customer due diligence process entails
the following:
a) collection of information on the purpose and intended nature of the business relationship;,
b) identification of the beneficial owner, should the customer be a legal person;
c) collection of information necessary for ongoing monitoring of the business relationship,
including scrutiny of transactions undertaken throughout the course of that relationship to
ensure that the transactions being conducted are consistent with the institution’s
knowledge of the customer, their business and risk profile;
d) monitoring of sources of funds
434. There are no specific requirements to perform enhanced on-going monitoring in situations with
higher than normal risk. There are no references to other higher risk customers such as nonresident customers, companies with nominee shareholding or bearer form etc. In respect of safety
boxes, there seemed to be awareness that in a number of instances the actual customer may be
merely a front for an illegal activity – but no institution indicated that they carry out anything but
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an identification process of the customer. Indeed, representatives of the National Anti Drug Unit
stated that users of safety boxes are not checked following initial identification.
435. The FATF recommendation requires enhanced customer due diligence for higher risk categories
and requires a higher level of measures in these higher risk categories. Apart from the AML/CFT
Law, there are no additional guidelines to provide further assistance to obliged institutions to help
them identify and address high-risk situations.
436. Section 13 of the AML/CFT Law specifies low risk circumstances, including those within Article
11 of the Directive 205/60 EC of 2005. However, Section 13 allows obliged entities not to perform
any identification or due diligence in respect of the specified low risk circumstances rather than
requiring simplified or reduced CDD measures as per FATF standards. This implies that
counterparties and beneficial owner may not be sufficiently identified; that this may not enable
continuous monitoring; and that unusual or suspicious transactions may not be sufficiently
identified.
437. Furthermore, there is no evidence that either the FIU or some of the obliged entities carry out a
risk analysis to decide the criteria for determining whether and when to exempt the specified low
risk customers/circumstances and to determine whether the circumstances are appropriate to the
Czech environment. According to the FIU, Section 13 (3) and (4) of the AML/CFT Law requires
obliged entities to verify that all conditions required have been met (this does not amount to risk
analysis) and that none of the customers, products, or transactions represents a risk of ML/FT
legitimisation. In respect of the latter, it is not evident how this can be carried out without any risk
analysis and without collection of some information. The result is that without risk analysis such
obliged entities do not have accurate information on their customers.
438. The situation described in the 3rd round evaluation report with respect to recommendation 5.10
still largely prevails. Indeed, while in the previous report, the AML Act allowed reduced
identification measures in case of credit or financial institutions operating in a country that imposes
an identification duty upon this institution in a comparable manner to the Czech Republic, now the
AML/CFT Law (Section 13) specifies that no CDD measures may be taken in respect of non
residents if they are:
(a) foreign credit or financial institutions operating in the territory of a country imposing and
enforcing anti-money laundering and financing of terrorism measures equivalent to those
imposed by the European Communities acquis and supervised to that respect;
(b) a company whose securities are traded at a regulated market and which is subject to
reporting requirements equivalent to those enforced by the European Communities acquis;
(c) a customer holding important public positions under the European Communities acquis
(subject to some conditions).
439. Obliged entities are required to verify that all conditions required had been met and that none of
the customers, products, or transactions represents a risk of legitimisation of ML/FT. PEPs are
excluded.
440. Similar to the situation during the 3rd round, interviewed institutions continue to interpret these
provisions as referring to institutions from the EU. The FATF recommendation in this respect is
not interpreted to mean that all EU countries are exempted. Most institutions rely on the list of noncooperative countries placed on the FIU website.
441. With reference to c.5.11, the AML/CFT Law requires that in case of doubt any exception to
the identification and due diligence requirements do not apply (Section 13 (3) and (4)).
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442. The FIU does not issue any guidelines to flesh out the various responsibilities or obligations
stemming from the AML/CFT Law. It does however give generalised replies to FAQ arising from
consultation, questions, training etc.
443. During on-site interviews, all obliged entities confirmed that they communicate extensively with
the FIU and they always received assistance. At the same time, a number of them indicated that
they would appreciate further guidelines (not solely related to this criterion). Indeed, verbal or
case-by-case communication can give rise to inconsistent application over time and does not
provide forward looking assistance on how institutions are expected to apply a risk-based
approach. Furthermore, obliged entities which do not approach the FIU may implement measures
inappropriately or in an inconsistent way from the expected norm.
444. Section 7(1) of the AML/CFT Law stipulates that identification of the customer should always be
carried out prior to transactions exceeding €1,000 unless stipulated otherwise in the Act. The limit
is not applicable in the event that the obliged entity has some suspicion about a transaction or when
starting a business relationship (Section 7 (2) (a) and (b)).
445. This implies that while prior identification for normal transactions is wide-spread, beneficial
owners and transactions with occasional customers for amounts below €1,000 are not captured.
Occasional customers are in some cases only identified in the event that the transaction is above
€15,000 (Section 2 (2) (d) and (e).
446. Furthermore, the exemptions specified under Sections 13 and 34 of the AML/CFT Law have
implications for the effective implementation of this criterion. In addition, Section 9 requires the
identification of the beneficial owner should the customer be a legal person but this is only if the
shares or distribution is above 25%, as noted previously.
447. Section 7 (1) of the AML/CFT Law requires identification of the customer for transactions
exceeding €1,000 prior to the transaction, unless stipulated otherwise by the Act. In terms of
Section 7 (2) (b) obliged entities are always required to identify the customer, without regard to the
limit of €1,000 on entering into an agreement to have a business relationship. Internal procedures
(as described in CNB Decree 281/2008 Article (5) (3)) require that financial institutions shall
ascertain information on the client upon the establishment of a business relationship. From the onsite interviews with financial institutions, it was understood that identification is always carried out
prior to the business relationship. But there are no guidelines on this issue.
448. Section 7(1) of the AMLCFT Act 2008 specifically requires identification prior to transactions.
There is, thus, no provision within the Czech AML/CFT Law that caters for identification after the
start of a business relationship with the exception of a life assurance contract. In the latter instance,
Section 7 (3) states that the insurance company is required to identify the individual entitled to
receive the life insurance settlement at the latest on the day of the payment.
449. As noted previously, there are instances when identification is not required – as per exceptions
from the identification and due diligence requirement allowed under Section 13; and the exemption
for obliged entities carrying out occasional or very limited transactions; and as per Section 9 (2) (b)
the identification of beneficiary owners in respect of legal persons above a 25% threshold.
450. According to Section 15 (1) of the AML/CFT Law, obliged entities are required to reject a
transaction or to enter into a business relationship should there be an identification requirement,
should the customer refuse the identification process or fail to submit the power of attorney under
Section 8(3), should he fail to assist the due diligence process, should the customer identification
or due diligence be impossible for other reasons, or should the person performing the customer
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identification or due diligence have a reason to doubt the correctness or authenticity of documents
submitted.
451. As noted previously, identification is required prior to commencing a business relationship. In the
event that a customer refuses to provide adequate information on the person he is representing or
undergo the “due diligence process”, the obliged entity has to submit a STR to the FIU (Section 6
(2) (c)).
452. The only requirement to terminate a business relationship is envisaged under Section 25 (1) in
respect of the special provisions relating to credit institutions in the event that they enter into a
corresponding bank relationship with a foreign correspondent institution, which is a shell
institution or is known for allowing its account to be used by a shell institution or which does not
apply measures against legitimisation of proceeds of ML/FT to the standard of the European
Union. In such cases, and in the event that it had already established such a relationship, it must
terminate the relationship in the shortest practicable period.
453. Obliged entities are required to check the identity of customers for transactions above €1,000 and
at the start of a business relationship (Section 7 of the AML/CFT Law). In accordance with Section
8 (6) they are also required to check the validity and completeness of the customer’s identification
data and information gathered in the course of the due diligence process. This can be interpreted as
requiring CDD measures to be applied at the appropriate time, but strictly speaking, this is a
prescriptive requirement and does not take into account issues relating to materiality and risk.
454. There is an embedded system of prior identification of the customer in respect of most
transactions. All institutions appeared to be well aware of this obligation. They also appeared well
aware of their obligation to retain the relevant documentation and the importance of a quick
response to the authorities in case of a request for documentation.
455. But, there are some concerns regarding effective implementation particularly in respect of the
identification and verification of beneficial ownership. A number of interviewed institutions
expressed difficulty in identifying such owners and the extent to which they are required to delve
to establish who the beneficial owners are. This was particularly evident in the case of bearer
shareholders and the ultimate natural person behind an enterprise or a legal person. Indeed, there
was concern (particularly by the Prosecutors) that bearer shareholdings can be used as white horses
to hide cash movements. Some also highlighted a concern regarding the issue of false identification
documents – which highlights an essential requirement for a verification process.
456. Others also had difficulties regarding the procedures they are expected to undertake regarding
this responsibility with a number of the institutions stating that reliance on a prima facie statement
by the customers is what is expected of them; with the verification depending on customer
cooperation – implying no independent check. However, all looked forward to more explicit
guidance on this aspect in light of the risk-based approach to this criterion. The application of a
risk-based approach is considered to be a difficult area in which to create an appropriate and
effective system of control measures by many interviewed institutions following the relatively
recent introduction of the AML/CFT Law.
457. Another concern related to the perception, in some cases, that mere identification satisfies the
customer due diligence process. There was limited awareness of the process of verification,
particularly in respect of beneficiary owners and customers opening safety boxes. In respect of the
latter, the Police expressed concern about the minimal controls on usage. Moreover, it appeared
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that a number of institutions took a rule-based approach to their responsibilities rather than trying
to identify the extent of risk, if any, the institution faced.
458. There appeared to be a lack of clarity between CDD and ECDD while there was little recognition
of reduced or simplified due diligence. The latter related to the exemption granted by the
AML/CFT Law in respect of low-risk customers. There seemed to be little awareness that in case
of risky customers, there should be a reference to senior management - normally reference was
made to one level higher.
Recommendation 6 (rated NC in the 3rd round MER)
459. The findings established following the 3rd Round Mutual Evaluation were that:
there was a basic requirement in place only as regards the banking sector and limited to
“significant public offices”;
effectiveness was low due to insufficient familiarity of the industry with the concept and as a
result of an absence of guidance.
460. The AML/CFT Law (Section 4(5)) defines a politically exposed person as:
a) a natural person in a prominent public position and with nation-wide responsibilities, such
as a head of state, a head of government, a minister and deputy or assistant minister, a
member of the parliament, a member of a supreme court, a constitutional court or another
high-level judicial body, decisions of which are not subject to further appeal, except in
exceptional circumstances, a member of a court of auditors or a central bank board, a highranking military officer, a member of an administrative, supervisory, or management board
of a state-owned business, an ambassador or chargé d’affaires, or a natural person, having
similar responsibilities on a Community or international level; all the above for the entire
period of the position and for one year after the termination of such position, and provided
the person:
1. has a residence outside the territory of the Czech Republic, or
2. holds such important public position outside the Czech Republic,
b) a natural person, who:
1. is the spouse, partner equivalent to the spouse or a parent of the person under a),
2. is a son or a daughter of the person under letter a) or a spouse or a partner of such son
or daughter (a son or daughter in law),
3. is a business partner or a beneficial owner of the same legal person, a trust, or any
other business entity under a foreign law, as the person under letter a) or is known to
the obliged entity as a person in a close business relationship with a person under letter
a), or
4. is a business partner or a beneficial owner of the same legal person, a trust, or any
other business entity under a foreign law known to have been established in benefit of a
person under letter a).
461. The definition is generally in line with the 3rd EU Directive and broadly with the general part of
the definition in the Glossary of definitions in the FATF Methodology (individuals entrusted with
prominent public functions). It is, however, a precise definition and does not seem to allow for
additional interpretation. There are no further guidelines available to provide assistance for obliged
entities to determine whether a client is a PEP or otherwise. Thus, senior politicians (who may not
be members of parliament), senior government officials and important political officials as
suggested in the Glossary of definitions in the FATF Methodology are not included within the
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definition. The FIU stated that the inclusion of assistant deputy minister (instead of the
terminology deputy minister) is meant to capture these additional positions.
462. The on-site interviews indicated that, in general, credit and financial institutions are generally
aware of the concept of PEPs but, in some cases, were less aware that it can also include the
customers, business partners and that they may need to establish whether a beneficial owner may
also be a PEP. Credit and financial institutions rely on the declaration included in the document
signed by a prospective client to establish whether he/she is a PEP or otherwise while some
institutions also access relevant web pages (such as www.world-check.com). Only a few
institutions, subsidiaries of foreign banks, stated that they carry out additional checks and require
additional information if the client is suspected/determined to be a PEP – this in line with the
banks, group policy. Many other institutions interviewed on-site institutions intimated that they do
not seek additional information while others held that a PEPs verification system is too costly and
they rely exclusively on customer information.
463. Section 15(3) of the AML/CFT Law specifically states that:
No employee of the obliged entity shall make a transaction for a politically exposed person
without consent of their direct supervisor or the statutory body of such obliged entity.
464. There is thus no legal requirement, as required by the FATF standard that:
(i) there is a procedure for approving the establishment of a business relationship with a PEP;
and
(ii) that the approval should be obtained from senior management.
465. The Czech authorities contend that the approval from senior management is captured by Section
15(3) of the AMLCFT which requires that the approval of the direct supervisor or the statutory
body of the institution has to be obtained. In terms of large institutions, it is difficult to interpret the
reference to the statutory body of the institution to refer to senior management – although this may
be applied for the smaller institutions with few employees.
466. There is no obligation in the AML/CFT Law to require senior management approval when an
existing client is subsequently found to be, or has become a PEP.
467. Section 9 (2) (d) requires obliged entities to monitor source of funds of PEPs while Section 15 (2)
of the AML/CFT Law states that:
The obliged entity shall refuse a transaction for a politically exposed person should the origin
of assets used in the transaction be unknown.
468. This implies that credit and financial institutions are required to consider and establish the source
of wealth and funds.
469. Section 9 (2), applicable to all transactions with PEPs, requires obliged entities to collect the
necessary information for ongoing monitoring of the business relationship, including scrutiny of
transactions undertaken throughout the course of that relationship to ensure that the transactions
being conducted are consistent with the institution’s knowledge of the customer, their business and
risk profile. Moreover, CNB Decree 281/2008, applicable to credit and financial institutions also
in respect of AML/FT risk management), requires risk classification of clients both upon the
establishment of a business relation with a client and during the course of such relationship.
470. However, on-site interviews with credit and financial institutions indicated that a number of
institutions considered it very difficult to establish conclusively whether a client is a PEP or
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otherwise and largely relied on the declaration included in the document signed by a prospective
customer. There was little indication of any subsequent follow-up.
Domestic PEP-s – Requirements
471. In terms of Section 4 (5) (a) (1) and (2) of the AML/CFT Law the provisions are applicable only
to foreign PEPs and Czech nationals in public functions abroad.
Ratification of the Merida Convention
472. The Czech authorities stated that the Czech Republic signed the 2003 United Nations Convention
against Corruption in 2005, but it has not ratified it pending a review of criminal liability of legal
persons, expected in 2011.
473. The on-site interviews indicated a number of difficulties in the implementation of effective
measures when dealing with PEPs. There was some difficulty in practical identification of PEPs,
particularly in respect of connected persons as well as how to establish whether a PEP may be a
beneficial owner.
474. A number of institutions called for further guidelines from the authorities to implement an
effective risk-based approach to their responsibilities. Institutions generally carry out identification
procedures in respect of an actual politically exposed person (in spite of the difficulty noted by
some institutions) but with little follow through in respect of connected persons as well as in
respect of verification. Some of the foreign-owned institutions had a good understanding of their
responsibility as a result of group-wide procedures. On the other hand, the FIU/CNB did not
indicate that they had encountered any significant problems with regard to adherence to
Recommendation 6 highlighting that foreign PEPs dealing with Czech institutions may be indeed
few.
475. The AML/CFT Law came into force only in 2008 while the previous law dealt very sparsely with
this issue. The comments from on-site interviews indicate that there are still some overall problems
with dealing with the concept of PEPs and that they encounter several difficulties in effectively
implementing the specific requirements.
476. The 3rd Round Mutual Evaluation established that:
•
•
the requirements in respect of recommendation 8 are only addressed – to some extent –
for banks; and
the broader implementation of the recommendation needs to be reconsidered.
477. The FIU considers that criterion 8.1 is addressed through the requirement in the AML/CFT Law
(Section 21) that credit and financial institutions should have internal procedures which should
provide for a description of CDD and adequate procedures commensurate with the nature of the
product or service and inherent AML/CFT risk. Section 21 (5) (d) of the AML/CFT Law requires
institutions to have:
Adequate and relevant methods and procedures to assess and manage risks and perform
internal controls and supervision of compliance with this Act
99
478. But, there continued to be no specific reference in the AML/CFT Law requiring financial
institutions to have policies in place or to take measures as may be needed to prevent the misuse of
technological developments in ML/FT. Similarly, CNB Decree 281/2008 on certain requirements
for the system of internal principles, procedures and control measures against the legitimisation of
the proceeds of crime and financing of terrorism, deals principally with client acceptability rules
rather than threats from new or developing technology. Although the Decree states that its second
scope is to require the introduction and application of methods and procedures for risk assessment,
risk management, internal control and the ensuring of control over compliance with the legally
defined obligations (of regulated institutions), there are no specific guidelines indicated that the
risks created by the use of new technologies are expected to feed into the institutions, risk analysis.
However, CNB decree 123/2007 Coll. – articles 30/1 and 30/4/d - requires credit institutions to
identify risks associated with products activities and systems.
479. During on-site interviews, one foreign-owned institution stated that when considering the
approval of new products by an internal committee, it does give consideration to ML/FT risks. But,
this was not generally stated or shared by the majority of the interviewed institutions, who mainly
consider this responsibility as the same as that for non face-to-face contact. The CNB however
stated that it does request available supplementary information of risk analyses of products
reflecting AML/CFT risks.
480. Section 8 (1) of the AML/CFT Law specifies that an obliged entity is required to perform the first
identification of a customer who is a natural person as well as any natural person acting on behalf
of a customer in personal presence of the identified, unless stipulated otherwise by the Act. Thus,
first identification generally has to be carried face-to-face.
481. The exceptions to this requirement, as stipulated in the AML/CFT Law, are listed in Sections 11
and 13.
482. Section 13 provides the exceptions from the identification and due diligence requirements.
However, section 13 (2) (d) (2) also specifies that an obliged entity may decide not to perform any
identification or due diligence, under certain conditions, should it involve:
Other products, should they pose low risk of their use for the purposes of legitimisation of
proceeds or financing of terrorism
483. For subsequent non face-to-face transactions but with persons representing the customer,
financial institutions are required to verify the identity of the acting natural person. However, there
is no legal requirement in the AML/CFT Law for institutions to have policies and procedures in
place to address any specific risks associated with non face-to- face business relationships or
transactions when conducting ongoing due diligence.
484. On the other hand, CNB Decree 281/2008 clearly requires that when executing a transaction
using remote communication devices, institutions shall create and apply procedures to verify
whether the transaction is being executed with an already identified customer. No further guidance
is provided by the authorities.
485. Section 11 includes a list of third-party reliance when identification may not be requested. It
requires that in the event of third-party reliance the obliged entity:
i. receives from the third party all relevant documents, including copies of all documents
used in the customer identification, all data indicating the purpose and nature of the
business transaction, and information on the identity of the beneficial owner. In the event
100
it doubts the correctness or completeness of such information, the obliged entity shall
refuse the customer information.
ii. in case of remote agreement on financial services under the Civil Code the obliged entity
shall receive the first payment from this agreement via an account kept on the customer’s
name in a credit institution or a foreign credit institution operating in the European Union
or the European Economic Area, and the customer is required to submit to the obliged
entity a copy of a document verifying the existence of the said account together with
copies of the relevant parts of their identity card and at least one more identification
document from which the obliged entity may determine the customer’s identification data,
type and serial number of such identity cards, issuing country or institution, and validity.13
486. The authorities have provided no additional guidance to institutions on the risks generated by
new technologies. Indeed, during on-site interviews there was little perception of such risks and
interviewed institutions generally equated this responsibility as part of their responsibility in non
face-to-face identification of clients.
487. Regarding identification, the AML/CFT Law, in respect of most transactions, requires specific
identification, generally based on the provision of identity cards. This is also the case with regards
to most of the initial relationship when subsequently the relationship is non face-to-face business.
Some institutions were however wary that they could not readily verify the authenticity of identity
cards (not only in respect of non face-to-face transactions but also generally). Interviews with some
prosecutors seemed to confirm that the problem with falsified identity cards was not small. In this
regard, it is important that additional documentation is required to complement the normal identity
requirement.
3.2.2
Recommendation 5
•
Issue guidance to institutions to flesh out the way obliged entities are expected to implement their
responsibilities stemming from the legislation on a risk-based approach.
•
Issue guidance to the financial institutions to ensure that the obligation to undertake CDD
measures when financial institution have doubts about veracity or adequacy of previously
obtained customer identification data is fully understood. In this respect, there is also legal
uncertainty in meeting the requirement under Recommendation 5.2(e).
To introduce preventive measures to deter the potential opening of accounts/safe boxes, etc. with
fictitious names.
•
•
To implement more effectively the requirements for obliged entities always to determine the
natural person behind a beneficial owner.
•
Require reasonable measures be taken to verify beneficial ownership including those that may be
low risk to align with FATF standards.
•
Specifically include within the AML/CFT Law natural persons acting on behalf of beneficial
owners.
13
The evaluators were not in a position to verify the specific cases of remote agreement on financial services
under the Civil Code.
101
•
Clarify to obliged entities (through guidance) how to obtain satisfactory evidence of the identity
of beneficial owners, bearer shares holders and silent partners and other similar cases. Ideally, the
latter two should be prohibited or verified through controlled registration.
•
Review the requirements for customer due diligence and enhanced due diligence to include other
measures as referred to in international standards.
•
Emphasise the verification process is not only for financial transactions but also for other services
such as the opening and usage of safety boxes.
•
Review the identification process in respect of low risk customers to one of reduced or simplified
customer due diligence instead of no identification requirement.
•
Carry out a risk analysis to decide the criteria for determining whether and when to exempt the
specified low risk customers/circumstances within the appropriate circumstances of the Czech
Republic.
•
Consider the issue of a list of non-cooperative countries as identified by The Czech authorities.
Recommendation 6
•
Issue detailed guidelines to obliged entities to flesh out the responsibilities and obligations of
obliged entities in respect of PEPs.
•
Review the definition of PEPs to make the list of PEPs (ie replace “shall mean” to “shall include”)
and include senior politicians, senior government officials and important political officials as
suggested in the FATF Recommendations.
•
Require that the approval for establishing and continuing a business relationship with a PEP is
given by senior management rather than the direct superior.
Recommendation 8
•
Introduce in the AML/CFT Law a specific obligation requiring measures to prevent the misuse of
technological developments.
•
Issue a legal requirement in the AML/CFT Law for institutions to have policies and procedures in
place to address any specific risks associated with non face-to-face business relationships or
transactions when conducting ongoing due diligence.
•
Issue guidance to flesh out the above two responsibilities.
•
Specifically require additional identification documents to verify the authenticity of the primary
identification in all non face-to-face business.
3.2.3
Compliance with Recommendations 5, 6 and 8
Rating
R.5
PC
• Czech measures in relation to identification and verification of the
beneficial ownership are below FATF standards;
• The identification and verification of beneficial owners is not always
determined;
• Silent partners are not registered and therefore cannot be identified
during the CDD/ECDD process;
• Certain categories of low risk business can be exempted from CDD
and/or ECDD instead of requiring simplified or reduced measures;
102
Rating
• Low risk customers/circumstances not subject to a risk analysis to
decide the criteria for determining whether and when to grant
exemption;
• Legal uncertainty in relation
Recommendation 5.2 (e);
R.6
PC
R.8
PC
to
the
implementation
of
• The overall level of effectiveness appears limited in the
identification/customer due diligence process in respect of beneficial
ownership as well as with regard to the verification process including
that related to safety deposit boxes. The required risk-based approach
is not supplemented by adequate guidance to enhance effectiveness.
• Does not include certain types of PEPs included in the glossary of
definitions in the Methodology;
• No requirement to consider whether a beneficial owner may also be a
PEP;
• Lack of comprehension in some cases of what constitutes a politically
exposed person;
• Approval is not specified to be at the level of senior management;
• Limited effectiveness and implementation.
• No specific requirement in the AML/CFT Law requiring financial
institutions to have policies in place or to take measures as may be
needed to prevent the misuse of technological developments in
MLFT;
• Consequently, there was no requirement for policies and procedures in
place;
• No general requirement for additional documentation to verify the
authenticity of the primary identification;
• There was low perception of the ML/FT threats that may arise from
the misuse of technological developments.
3.3
Financial institution secrecy or confidentiality (R.4)
3.3.1
488. According to Section 38 of the AML/CFT Law, obliged institutions operating in the Czech
Republic are under the obligation to maintain the confidentiality of the information they acquire in
the course of their business relations. All the banking transactions and financial services of banks,
including account balances and deposits, are subject to banking secrecy. Furthermore, Section 38
of the AML/CFT Law establishes a detailed list of exemptions from professional secrecy stated in
Section 38, Act No. 21/1992 Coll. of 20 December 1991, on Banks, which sets out bank secrecy
and the circumstances in which a disclosure of information cannot be considered a breach of this
secrecy. There are similar provisions in legislation on Insurance and Securities legislation. Indeed,
according to Article 125 of the Law on Insurance, the inspectors of the CNB are bound by
confidentiality with exceptions set out in Article 128. Furthermore, Article 117.2 (f) of the Law on
Capital Market provides that persons operating on capital markets shall be exempted from the duty
of confidentiality for the purpose of providing the Ministry of Finance (FAU) with information
when fulfilling, according to special legal rule on fight against money laundering or a special legal
103
rule on the implementation of international sanctions in order to maintain international peace and
security, protect fundamental rights and combat terrorism.
489. Finally, according to Article 26 (f) of the Law on Supervision of the Capital Market Area, the
provision of information to the authorities responsible for the fight against money laundering or
imposing international sanctions to maintain international peace and security, protecting
fundamental human rights and combating terrorism shall not be deemed as a breach of the duty of
confidentiality.
490. The AML/CFT Law sets forth exemptions of confidentiality in Section 39 for all obliged entities
as well as supervisory authorities.
491. According to the findings of the 3rd MER, there were “inconsistencies between the sector specific
regulations (which sometimes provide for the prior approval by an authority or the customer) and
the AML Act (which does not provide for a preliminary approval of any kind although it covers
mostly the same beneficiaries of the information…) […] It is therefore recommended to review the
consistency of the provisions on financial confidentiality to avoid contradictions between sectorspecific regulations and the AML Act and to remove in particular unnecessary preliminary
authorisations in sector-specific regulations” (paragraphs 596 and 597 of the 3rd MER). With the
adoption of the new AML/CFT Law, and thus the transposition of 3rd EU Directive, these
shortcomings were addressed.
492. Suspension of financial confidentiality and secrecy is clearly provided in Section 24 relating to
the obliged entities’ obligation to report to the FAU all information on transactions requiring
identification or transactions analysed by the FAU as well as documentation and information on
persons taking part in such transactions. The obliged entity shall provide access to documentation
onsite if the FAU so requests.
493. The implementation of new pieces of legislation in Securities and Insurance sectors, have
allowed to repeal the compulsory requirement of the chairman of the stock exchange chamber to
release the confidentiality provisions set forth in Section 20 of the Stock Exchange Act – Act No.
214/1992 Coll.
494. Section 20 of the Law on the Stock Exchange Act provided that participants in a stock exchange
area (members of its committees, brokers, employees of the stock exchange etc.) were obliged to
keep confidential any information acquired; these persons might be released from these
confidentiality provisions by the chairman of the stock exchange chamber.
495. In the Insurance sector, the client’s consent is no longer required for information related to
money laundering to be shared with the FAU and other authorities, as was the situation under the
former and now repealed Art 39 of Act No.363/1999 Col. The new Insurance Law provides
explicitly that information sharing between the Ministry of Finance and the CNB is not considered
as an infringement of confidentiality provided it is in keeping with the provisions of the AML/CFT
Law (Section 14) or the Law on the Implementation of International Sanctions (Section 30.
paragraph 3).
496. The referred Insurance act, no. 277/2009 Coll., states in its article no. 125, that inspectors of the
Czech National Bank are bound by confidentiality. Exemptions from this duty are stated in the
Article no. 128. Article 128 paragraph 7 reads:
Observation of duties to the Ministry of Finance stemming from the act on selected measures
against legitimisation of proceeds of crime and financing of terrorism or from the act on
104
implementation of international sanctions14 and for the purpose of financial markets analyses and
preparation of legislative acts regulating the financial market, is not an infringement of the
obligation of confidentiality according to this Act.
497. In addition, the obligation of confidentiality stated in AML Section 38 for obliged entities, is
exempted to a large extent and cannot be invoked, according Section 39, in cases such as:
a law enforcement authority when conducting criminal proceedings related to the
legitimisation of proceeds of crime and financing of terrorism, or if the matter concerns the
compliance with the obligation to report a suspicious transaction in connection with any
such crime;
specialised Police units involved in the identification of the proceeds of crime and financing
of terrorism;
an authority of a third country referred to in Section 33 (related to international cooperation) in the process of provision of information intended for the purpose of delivering
on the intention of this Act, unless prohibited by another legal instrument;
the competent financial directorate or the General Directorate of Customs in relation to facts
which are a part of information referred to in Section 32(2) (information transmitted by FAU
related to investigations carried out in Customs jurisdiction);
authorities referred to in Section 35(1) (these are, FAU, the Czech National Bank,
administrative authorities with powers to supervise the compliance with the legislation
regulating lotteries and other similar games, the Czech Trade Inspection, and the competent
bodies of professional chambers of lawyers, public notaries, auditors, licensed executors or
tax advisors);
the administrative authority competent to perform state control or conduct an administrative
procedure in the area of implementation of international sanctions;
an authority mandated by another law to decide on the revocation of a licence for business or
other independent gainful activity upon the lodging of a motion filed by the Ministry;
a financial arbitrator deciding, according to another law, in a dispute of the claimant against
an institution;
a person who could raise a claim for damages incurred as a result of the implementation of
this Act, provided facts conclusive for the making of the claim are communicated ex post;
the obliged entity may, in this instance, inform the customer that steps had been taken under
this Act, but only after the decision of the competent law enforcement authority to secure or
seize the subject of the suspicious transaction, or for which the period as per Section 20(7)
had expired, was enforced; in all other instances only after the Ministry has granted its
written consent;
a court adjudicating civil law disputes concerning a suspicious transaction or a claim for
compensation for damages incurred as a result of complying with obligations under this Act;
the National Security Office, Ministry of Interior or an intelligence service in the process of
a clearance procedure in accordance with to another legal instrument.
498. The evaluators found neither legal nor practical obstacles that could hinder the sharing of
information related to Recommendation 7, 9 or SR VII.
as far as correspondent banking is related, there is no restriction in the AML/CFT Law that
prevents the financial entity acting as correspondent bank from transferring information
regarding AML to the entity on behalf which it is operating and vice versa;
14
Act No. 69/2006 Coll., on implementation of international sanctions.
105
regarding third party and introducers, this possibility is set out in Section 11, according to
the requirements provided in the 2005/60/CE AML Directive, the circumstances under
which the transfer of the information related to the CDD procedure can be carried out by the
third party, are set out in detail in the referred act;
in the case of the information related to the wire transfer payer that has to accompany
through the payment chain, it is completely provided in the AML law, Section 35, regarding
supervision, even though this obligation is set forth in Regulation (EC) No 1781/2006 of the
European Parliament and the Council, which is directly applicable for the country members.
The sanction regime for failure to comply is stated in Section 49 of the AML/CFT Law.
499. There are no obstacles for the information gathered to be shared with foreign bodies for
AML/CFT purposes, in line with the provisions of the AML/CFT Law.
3.3.2
500. From the interviews conducted on-site it appears that there are no legal obstacles regarding
financial secrecy which could hamper the application of the FATF Recommendations, neither
domestically nor with foreign counterparts.
501. The authorities advised that the FAU has been tasked with the preparation of a study on the most
effective ways for the authorities to obtain information from financial institutions.
502. The authorities are also in the process of establishing a Central Register of Bank Accounts which
may be considered as an optimal practical solution to information gathering. This register will be a
database managed by a state authority containing basic data on clients and financial products and
the information will be available through on-line requests. For further information it will be
possible to contact the specific financial institution. At present the discussions with the competent
authorities and financial institutions are in the early stages. The evaluators welcome this
development.
503. From the interviews conducted on site there appear to be no obstructions to the sharing of
information either domestically in respect of financial institutions, or cross-border. The FAU and
CNB seemed to be in a position to access and share the information they require to properly
perform their functions in combating ML or TF.
3.3.3
Rating
R.4
C
•
This Recommendation is fully implemented.
3.4
Record Keeping and Wire Transfer Rules (R.10 and SR.VII)
3.4.1
504. The 3rd Round MER had highlighted the following issues:
106
The retention period of 10 years for obliged entities did not apply to traders in second
hand goods and cultural items, who were required to retain the information for 3 years in
all cases, and 10 years when the value of the transaction is above €10,000;
CNB regulations for banks, branches of foreign banks as well as foreign exchange
institutions were required to keep records of transactions for a period of ten years,
without further precision/distinction. Since the AML Act was more specific (record
keeping after completion of the transaction and after termination of the relationship), the
evaluation noted that this could create confusions, although the Czech authorities
indicated there were no particular problems experienced;
Record keeping requirements should more explicitly cover account files and business
correspondence; and
In practice, files and documents are too often kept in paper form (banking sector)
which creates difficulties to retrieve information in a timely manner.
505. There is an evident increase in electronic record keeping within financial institutions. Moneyweb
also enables electronic transfer of records. The Czech FIU indicated the ease which they can obtain
electronic records (photocopy of IDs, of contracts and account statements) from the domestic
banks in response to foreign international cooperation requests. Nonetheless, the examiners were
informed by the banking association that in some smaller banks there was some evidence of paper
based systems or record keeping which could contribute to slight delays in reconstructing
transactions. The Czech authorities, nonetheless, remain convinced that electronic record keeping
is universally in practice.
506. Section 16 of the AML/CFT Law requires obliged entities to retain records of all identification
data and of all data and documents on transfers requiring identification for a period of 10 years
after terminating the business relationship with the customer. Section 16 (2) of the AML/CFT –
Act 2008 requires the retention of “all data and documents” on transfers requiring identification.
This is interpreted to mean by the authorities also business correspondence though this is not
explicitly provided for. The authorities considered that the time limit of ten years is long enough
and do not envisage requiring information after this period.
507. Article 21 (2) of the Act on Banks (Act 21/1992 Coll. as amended) specifies that in respect of
accounting and business documentation:
508. Thus, the issue raised in the 3rd Round Mutual Evaluation Report remains, though there was
again no concern expressed either by the authorities or the banks in this respect.
509. It is noted that the retention period for maintaining records is 10 years without any reference to
the FATF recommendation that financial institutions would need to maintain records for a longer
period if requested to do so by a competent authority in specific cases and upon proper authority.
Although this does not appear to create any problems in practice, this requirement should be
included in a law, regulation or other enforceable means. Furthermore, as identification is only
required for transactions above €1,000, records for transaction of less than €1,000 are not required
to be kept.
510. It is also noted that Section 8 (2) (b) reads:
The obliged entity shall take a record of and verify such customer’s identification data from
their business registration documents, and, in the extent stipulated in letter a), identify the
natural person acting in the transaction on behalf of such legal person; should the statutory
body, its member, or the person in control of such legal person be another legal person, the
obliged entity shall also record such person’s data.
107
511. Furthermore, in respect of beneficial ownership, Section 9 (2) (b) requires CDD only in the event
that the customer is a legal person. This is further restricted by Section 4 to holdings or rights
above 25% of assets or distributable assets.
512. The above implies that obliged entities are required to identify the ultimate natural person behind
a legal person up to a certain specified extent but are not obliged to identify a beneficiary of a
natural person (although banks indicated that they request customers to indicate such a case). It
follows naturally that such records under the specified limits cannot be retained.
513. In accordance with Articles 5 (5) and 11 of Regulation (EC) No 1781/2006 of the European
Parliament and of the Council of 15 November 2006 on information on the payer accompanying
transfers of funds, the payment service provider of the payer and the payee shall keep records
of any information received on the payer for five years. This Regulation is directly applicable in
the Czech Republic.
514. As noted under Recommendation 5, there are no identification or CDD requirements in respect of
certain low risk customers (Section 34 of the AML/CFT Law) – hence records cannot be kept in
such circumstances.
515. Section 25 (6) of the AML/CFT Law inter alia specifies that credit or financial institutions shall
implement an effective system in respect of record keeping. The scope of the system has to be
commensurate with the size of the institution and the nature of its business operations. It is thus
required to be in a position, by an established deadline, on a request from the FIU to disclose
information whether it maintains, or has in the previous 10 years maintained, commercial relations
with a specific natural or legal person, whom it was obliged to identify, and any details of the
nature of the relations.
516. The Czech authorities also pointed to § 7 of the CNB Decree 281/2008 Coll. and § 10 of the CNB
Decree 123/2007 Coll. which require financial institutions to record the approval and decision
making processes in order that they are traceable within the financial institutions. Though this is
evidence of the requirement to ensure the traceability of records generally it seems to the
evaluators not exactly on point with the requirement to ensure that transaction records are
sufficient in all cases to provide evidence for prosecution of criminal activity as required by the
standard.
517. As noted above, a few institutions had some doubt regarding their ability to build a chain of
transactions spanning a number of years within a reasonable time as these are retained in paper
form.
518. Section 17 of the AML/CFT Law, on cooperation in record keeping, allows that the data under
Section 16 may be kept by one of the obliged entities provided the other involved obliged entities
have access to all necessary information including copies of all documents. However, there is no
further guidance on this issue and therefore can possibly lead to a gap in the retention of
information.
519. There is no suggestion that obliged entities have any particular problems in retaining
documentation though it is uncertain the extent to which smaller institutions are in a position to
retrieve the paper-based documentation to build a chain of transactions within reasonable time. On
the other hand, although it is unclear whether the AML/CFT Law specifically requires that
information could be requested on transactions (but rather on identification and business
relationship), no institution indicated that this information would not be provided.
108
520. As noted under Recommendation 5, some institutions can be effectively exempted from carrying
out any CDD in the event of a determination that it is a low-risk transaction. In these cases,
information would not be available.
Special Recommendation VII (rated LC in the 3rd round MER)
521. The 3rd round MER had concluded that the requirements relating to SR VII on wire-transfers
were not been directly addressed, but dealt with by different pieces of legislation. The report
had recommended that financial institutions performing wire transfers are required to keep
originator information through the payment chain; and that effective risk-based regulations and
procedures are introduced for identifying and handling wire transfers that are not accompanied by
complete originator information. Moreover, the competencies and supervisory power of the
competent authorities should be strengthened, especially in the case of the holder of postal
licence as a provider of wire-transfer services.
522. As in other EU countries, Regulation (EC) No 1781/2006 of the European Parliament and
of the Council of 15 November 2006 on information accompanying transfers of funds, is directly
applicable in the Czech Republic without any additional implementation requirements.
523. The EU Regulation lays down rules on information on the payer to accompany transfers of funds
for the purposes of the prevention, investigation and detection of money laundering and terrorist
financing. It applies to transfers of funds, in any currency, which are sent or received by a payment
service provider established in the EU, subject to certain specified exemptions which are
considered as low risk. The obligation on the payment service provider (PSP) of the payer is to
have complete information on the payer consisting of his name, address and account number (or
other specified alternate information) to allow the transaction to be traced back to the payer.
Furthermore, PSPs are required to ensure that transfers of funds are accompanied by complete
information on the payer, which must be verified before the transfer of funds from a reliable and
independent source. This information is to be retained for five years.
524. Articles 4 and 5 of the EU Regulation provide for the implementation of SRVII.1. According to
Article 5 of the Regulation, the payer’s PSP has to ensure that transfers of funds are accompanied
by complete information on the payer while Article 4 defines what is meant by complete
information.
525. This generally consists of the name, address, and account number but the address may be
substituted with the date and place of birth of the payer, a customer identification number or
national identity number. In the case that the payer does not have an account number, the PSP
has to substitute it with a unique identifier which allows the transaction to be traced back to
the payer. Article 5 of the Regulation also specifies that the PSP has to verify the complete
information on the payer, before transferring the funds from reliable and independent source in
respect of wire transfers of €1,000 or more.
526. Due to the concept of the single market, the EU Regulation stipulates that it is only in the case
where the payer’s PSP is outside the European Union, full originator information should be
included in the message or payment form accompanying the wire transfer. For the purposes of the
EU Regulation, transfers within the EU are considered as domestic transactions by the FATF.
527. In the case of batch transfers, Article 7(2) states that full originator information is not required
provided that the batch file contains that information and that the individual transfers carry the
account number of the payer or a unique identifier.
109
528. In accordance with Article 6(1) of the EU Regulation, in respect of wire transfers within the EU,
the account number is always transferred. The name of the originator is usually also included.
529. Article 8 of the Regulation specifies that the PSP of the payee shall detect whether, in the
messaging or payment and settlement system used to effect a transfer of funds, the fields relating to
the information on the payer have been completed using the characters or inputs admissible within
the conventions of that messaging or payment and settlement system. Such PSPS are required to
have effective procedures in place in order to detect any missing required information.
530. Article 13 of the EU Regulation regulates the issue regarding the retention period of five years in
the event that technical limitations prevent the full originator information accompanying a crossborder wire transfer from being transmitted with a related domestic wire-transfer.
531. Article 10 of the EU Regulation requires that the PSP of the payee shall consider missing or
incomplete information on the payer as a factor in assessing whether the transfer of funds, or any
related transaction, is suspicious, and whether it must be reported to the authorities responsible for
combating money laundering or terrorist financing.
532. Also in accordance with Article 9 of the EU Regulation, if the PSP of the payee becomes aware
when receiving funds that information on the payer is missing or incomplete, it shall either
reject the transfer or ask for complete information on the payer. The evaluators were
informed that the FIU received 2 STRs since 2006 from PSPs in respect of other PSPs which did
not complete the required information – subsequently the contract with these other PSPs were
cancelled.
533. Article 15(3) of the EU Regulation requires that EU Member States appoint competent authorities
to effectively monitor, and take necessary measures with a view to ensuring, compliance with the
requirements of the Regulation. However, there is no reference within either internal regulations
or guidance on how this has been applied within the Czech Republic. The evaluators were not in a
position to evaluate the effectives of the monitoring system, to assess how correspondent account
files were reviewed to ensure an ECDD process nor are they aware of any findings. But the CNB
confirmed that it does review the files and also AML/CFT Questionnaires connecting the level of
AML/CFT provision of the correspondent banks, particularly in the case of non EU banks. It stated
that the responsibility for approving and establishing a new correspondent relationship often
belongs to the parent bank. Furthermore it stated that it reviews the sources of information used by
institutions for determining whether respondent banks are regulated, they are not a shell bank and
do not deal indirectly with shell banks. The usual sources for such verifications are:
The Bankers Almanac;
Information from the public sources (internet, annual report, etc.);
Information from the relevant banking group;
Questionnaire prepared by the bank for this specific purpose.
534. Article 15(1) of the EU Regulation requires that Member States lay down the rules on penalties
applicable to infringements of the provisions of this Regulation and shall take all measures
necessary to ensure that they are implemented. Such penalties shall be effective, proportionate and
dissuasive.
535. The Czech Republic imposes a fine up to CZK 10,000,000 (circa €389,000) for administrative
offences (Section 49 of the AML/CFT Law). These administrative fees are sanctioned if there are
contraventions relating to the content of information accompanying a transfer of funds. These are
applicable when:
110
i.
ii.
the person fails to ensure that the information on the payer accompany the transfer;
the person has not implemented effective procedures for identification of missing or
incomplete information on the payer;
iii. the person fails to take action against the provider of payment services of the payer who
had failed to ensure that a transfer of funds is accompanied with information on the payer;
or
iv. it fails to present upon request of the provider of payment services of the recipient
information on the payer in cases when the transfer of funds does not include full
information of the payer.
536. If these contraventions had prevented or made more difficult the identification or seizure of the
proceeds of crime, or made the financing of terrorism possible, a fine up to CZK 50,000,000 shall
be imposed. As per comments in relation to Recommendation 17, the administrative sanctioning
regime seemingly in the Czech Republic is not considered as proportionate in terms of range of
sanctions that can be applied. No financial sanctions have been imposed, placing some doubt on
the effectiveness of the sanctioning regime. Furthermore, direct sanctions are not applicable to
directors, managers and employees. Moreover, failings in respect of the proper carrying out of the
identification process are not sanctionable.
537. Regulation (EC) No 1781/2006 is directly applicable within the Czech Republic. Many of the
requirements can be captured within the normal application of the AML/CFT regime as
encapsulated within the AML/CFT Law. The evaluators were advised that no sanctions had been
taken in respect of any identified breaches of the EC Regulation.
3.4.2
Recommendation and comments
Recommendation 10
•
•
•
•
•
•
Although the problem has not arisen in practice so far the evaluators are aware, clarify in
law or regulation that the retention period for maintaining records could be for a longer
period if requested to do so by a domestic competent authority in specific cases and upon
proper authority.
Include specifically in the law a requirement to retain business correspondence for at least
five years following the termination of an account or business relationship.
Require that information retained includes also that of the ultimate natural person behind a
legal person.
Clarify that transaction records are maintained in such a way as to permit the
reconstruction of individual transactions so as to provide evidence for prosecution of
criminal activity.
Consider the issue of guidelines specifying retrieval methodologies applicable to paperbased maintenance of records in order to facilitate early and orderly retrieval.
Consider issuing guidance in respect of cooperation between obliged entities in record
keeping so as ensuring that there are no gaps in such cases.
Special Recommendation VII
•
Consider, in the light of future findings of onsite inspections (and any sanction issued in
this respect) by The Czech authorities, issuing guidelines to obliged entities on the
practical implementation of the EU Regulation.
111
3.4.3
Compliance with Recommendation 10 and Special Recommendation VII
Rating
R.10
LC
•
•
•
SR.VII
LC
•
There is no requirement that the retention period for maintaining
records could be extended for a longer period if requested to do so by
the FIU in specific cases and upon proper authority;
There are no clear requirements obliging institutions to maintain
records in such a way as to permit the reconstruction of individual
transactions so as to provide evidence for prosecution of criminal
activity;
There are no explicit requirements in the AML/CFT Law to retain
information concerning business correspondence for at least five
years following the termination of an account or business
relationship.
A reserve on effectiveness of implementation.
Unusual and Suspicious transactions
3.5
Monitoring of Transactions and Relationship Reporting (R.11 and R.21)
3.5.1
Description and analysis 15
538. The 3rd Mutual Evaluation Report concluded that there was no requirement in the AML/CFT Law
to pay special attention to all complex, unusual large transactions, or unusual patterns of
transactions. The obligation in the Act did not go beyond identification/reporting purposes in
respect of transactions without apparent economic purpose or which do not match the client’s
profile etc.
539. Only the CNB Provision 1 of 2003 required banks to pay special attention to all complex,
unusual large transactions, or unusual patterns of transactions etc. It therefore recommended that
the obligation of R.11 is expanded beyond the banking sector to all financial institutions and other
obliged entities.
540. Section 6 of the AML/CFT Law defines a suspicious transaction as a transaction the
circumstances of which lead to a suspicion of legitimisations of proceeds of crime or financing of
terrorism or any other unlawful activity. Inter alia, this includes:
numerous transactions performed in one day or in a short period of time and not typical of
the given customer;
number of various accounts opened by the given customer which are in obvious discrepancy
with their business activities and financial situation;
transactions that make no obvious economic sense;
15
The description of the system for reporting suspicious transactions in s.3.7 is integrally linked with the
description of the FIU in s.2.5, and the two texts need to be complementary and not duplicative.
112
assets handled by the customer which are in obvious discrepancy with the business activities
and financial situation.
541. Section 9 (2) (c) of the AML/CFT Law requires the collection of information necessary for
ongoing monitoring of the business relationship. This includes the scrutiny of transactions
undertaken throughout the course of that relationship to ensure that the transactions being
conducted are consistent with the institution’s knowledge of the customer, the business and risk
profile.
542. Articles 5 (2) (g) of the CNB Decree (281/2008 Coll), which is however not applicable to all
financial institutions, requires institutions to compile and assess a customer’s risk profile in the
event of unusual manner of execution of a transaction, particularly in respect of the type of
customer, size of transaction and business16. This is not however tantamount to paying special
attention to complex, unusual large transactions as per FATF recommendation but is only required
for the purpose of compiling a risk profile in the event of an unusual manner of execution. During
the on-site interview with the CNB, there was some concern expressed that the monitoring of
unusual transactions by institutions required extensive resources and institutions might be tempted
to adjust thresholds to enable them to cope with the work load.
543. It is difficult to interpret the provisions of Section 6 in the AML/CFT Law as covering the
requirement to pay special attention to complex, unusual large transactions and all patterns of
transactions as maintained by The Czech authorities. In the evaluators, view, these do not cover
those transactions that are complex, unusual and large. Furthermore, Section 6 would not be
applicable to customers considered as low risk. On the other hand, Section 9 (2) (c) to a certain
extent can be partly interpreted to cover, although not directly, transactions that are unusually large
transactions but not necessarily to complex or occasional transactions.
544. The identification process (Section 7 of the AML/CFT Law) requires identification of customers
for a transaction exceeding €1,000 and in other specified circumstances. On the other hand Section
9 (1) requires that obliged entity may take copies or make excerpts of identification documents for
amounts in excess of €15,000. Section 7 and 9 do not go beyond identification of the client (as was
also the case in the 3rd evaluation). There is no requirement in the AML/CFT Law that the
background, purpose and findings of complex, unusual and large transactions are set forth in
writing. Moreover, the requirement for taking exerts of such information as per Section 9 (1) is not
mandatory.
545. In accordance with Section 16 (1) and (2) of the AML/CFT Law, specified obliged entities are
required to retain identification documents and records of all data and documents on transfers
requiring identification to be kept for a period of 10 years. However, there is no requirement to set
forth in writing the background, purpose and findings of complex, unusual and large transactions
and thus consequently there is no specific obligation to retain such findings.
546. On site interviews indicated that some of the banks and insurance companies (subsidiaries of
cross border institutions) had internal procedures to examine complex, unusual large transactions,
on a case-by-case basis as referred by the front office desk to the analysts within the compliance
units of these institutions. These references appeared to usually arise as a result of suspicion by the
front office and are not necessarily a general rule of procedure. One bank mentioned that it did
have internal rules on complex, unusual large transactions as a result of group compliance
16
Refer to footnote under R.5.
113
procedures. Another bank official stated that he interpreted Articles 5 (2) (g) of the CNB Decree
(281/2008 Coll) to refer to such types of transactions. No institution however stated that the
analyses are retained for a period, although it can be concluded that this would be the case.
547. The insurance sector representatives interviewed indicated that they do give special attention to
certain specific complex unusual large transactions. These include instances when customers pay
additional large premium and subsequently request repayment after a period of time; and the
buying and selling of investment linked insurance after a short period of time.
548. It cannot however be concluded that in the absence of specific legislative requirements or
comprehensive guidelines whether other, perhaps smaller or non-subsidiaries of foreign
institutions, pay special attention and carry out such analysis on complex, unusual large
transactions and retain such findings.
549. The AML/CFT Law contains a list of activities by a customer that shall be perceived as
suspicious. Section 6 (1) (h) refers to "customer or the beneficial owner who are nationals of a
country which does not enforce, or fails to fully enforce, measures to combat legitimisation of
proceeds of crime and financing of terrorism". There are no other specific measures or strong
guidance, other than what is described beneath, requiring special attention to be paid in respect of
business relationships and transactions with persons from or in countries which do not or
insufficiently apply the FATF Recommendations in the AML/CFT law, such as the carrying out of
enhanced CDD.
550. According to the CNB Decree N° 281/2008 (Article 5(2)), institutions shall compile and assess a
client’s risk profile with regard to a list of risk factors, some of which refer to a list of clients or
transactions from states that apply insufficiently or not at all measures against the legitimisation of
the proceeds of crime and financing of terrorism or states that the institution, by its own
assessment, regards as risky.
551. The Czech authorities informed the evaluators that the FIU is providing information to the
industry on non-cooperative jurisdictions based on the statements of MONEYVAL and/or FATF
together with their explanatory comment, via their website.
552. The CNB stated that during the on-site inspections they examine and ensure that risk profiles are
compiled by financial institutions. CNB confirmed that financial institutions adhere to this
requirement. Furthermore, the banking sector uses the FIU list and other lists provided by their
parent company and/or the OECD list. However, according to the CNB, financial institutions do
not transact or carry out business with non-cooperative jurisdictions.
553. A number of banks informed that they communicate with the FIU to assess which countries are
considered as risky. Such identified jurisdictions are subsequently entered into their information
system. Some of the subsidiaries of international cross border banks also informed that, in line with
group policies, they maintain lists of countries considered as high risk jurisdictions as well as those
which have particular risks requiring special attention. Furthermore, they also maintain a list of
risky countries (identified through OECD) of tax havens and/or known for drug trafficking. These
institutions compile a country risk profile but in effect they do not monitor closely such countries.
554. The representatives of the post office informed the evaluators that they can transfer money to
only 13 countries within the EU while the representatives of the foreign exchange office (Western
Union agent) told the evaluators that their IT systems limit the transfer of funds to a list of
predetermined countries provided by the parent company.
114
555. Similar to the findings of the 3rd round evaluation report, the regulations remain silent regarding
the requirements of c.21.2 and c.21.3. In practice there is over reliance on the FATF and OECD list
and on the EU list of sanctions with little initiative from the authorities as well as part of industry.
556. Interviewed institutions informed that they check counterparts client/country and consult with
their parent institution when they identify transactions with risky countries, to which they apply a
higher level of monitoring. Another (state-owned) institution emphasised that in the event of
concern with countries not applying FATF recommendations it will stop business with
counterparties. At the same time, this institution also remarked that there may be a requirement to
support (export) finance in which case, under certain conditions (e.g. not in contravention of
sanction) the supervisory board may decide to continue transacting.
557. The FIU did not intimate that they apply any specific measures against countries that do not
apply, or insufficiently, the FATF recommendations, except for the issuance or reference to
international list of countries as specified previously. The FIU referred that Act No. 69/2006 Coll.
on Carrying Out of International Sanctions stipulates that “in the area of financial transfers, use of
other payment means, purchase and sale of securities and investment tools, sanctions may consist
of restrictions and prohibitions on
(a) any type of transaction by a Czech person to benefit an entity subject to international
sanctions or a person subject to international sanctions, as well as deals with such persons,
including trading in foreign currency,
(b) renting out of safety deposit boxes to an entity subject to international sanctions or a person
subject to international sanctions, or receiving of goods subject to international sanctions for
safe deposit, provided it is reasonably practicable to seek evidence of the fact that the goods is
subject to international sanctions,
c) provision of money, investment tools or other securities or financial and economic sources to
an entity subject to international sanctions or a person subject to international sanctions,
(d) transfers of money, investment tools or other securities to or from an account controlled by
an entity subject to international sanctions or a person subject to international sanctions,
including payments from cashier’s checks, provided it is reasonably practicable to seek
evidence thereof,
(e) disbursement of interest from deposits in the accounts controlled by an entity subject to
international sanctions or a person subject to international sanctions, including disbursement of
interest from securities and investment tools,
(f) entering into an insurance contract with an entity subject to international sanctions or a
(person subject to international sanctions, or disbursement of insurance money to such persons,
or
(g) any and all activities which would or may facilitate transactions described under letters a)
through f). However, in the evaluators, opinion this does not sufficiently address the
requirements as specified in the FATF recommendations. Moreover, there are apparently no
further guidelines on the application of counter-measures in such cases.
558. Only some of the basic requirements of R.21 are implemented in the AML/CFT law and to some
extent in the banking regulations. Similar to the analysis of the 3rd MER, there is an over reliance
on official lists of risky countries. Indeed, a number of institutions do not carry out their on own
risk assessments.
559. The Czech Republic has been able to, and has issued advisories to the financial sector concerning
identified AML/CFT deficiencies. In respect of more severe countermeasures The Czech
115
authorities indicated that they could act under the domestic law on international sanctions
(but which only covers specific UN resolutions) and also under common positions agreed within
the EU. However, there is no other internal mechanism for more severe countermeasures.
3.5.2
Recommendation 11
• Specify directly in the AML/CFT Law that obliged entities are required to pay special
attention to transactions that are complex, unusual and large.
• Specifically require that these provisions are also applicable to low risk clients.
• Introduce in the AML/CFT Law that the findings of the examination of the background
and purpose of complex, unusual and large transactions that have no apparent
economic or lawful purpose are set forth such findings in writing and retained for a
period of at least ten years.
• Issue guidance to give examples of complex and unusual large transactions as well as
those which have an unusual pattern without a seemingly apparent economic or lawful
purpose.
Recommendation 21
• Specific guidance should be issued by the authorities to provide institutions with a list
of measures that they can apply in the event of identified risky country
• Institutions should carry out their own countries risk assessment without over reliance
on official list.
3.5.3
Compliance with Recommendation 11 and Special Recommendation 21
Rating
R.11
PC
•
•
•
•
•
R.21
PC
•
•
There is no clear requirement for all financial institutions to pay special
attention to all complex, unusual large transactions, or unusual pattern of
transactions, that have apparent or visible economic or lawful purpose;
The requirement to retain information documents for amounts in excess of
€15,000 (Section 9 (1)) is not mandatory;
There is no enforceable requirement that the background, purpose and
findings of complex, unusual and large transactions are set forth in writing;
There is no specific requirement to keep the background and findings of
complex, unusual and large transactions available for competent authorities
and auditors for at least five years;
Limited appreciation of such risk by a number of interviewed institutions.
There is some lack of clarity within institutions on the terminology and
requirement in respect of complex, unusual large transactions as no
guidance has been issued.
Indirect requirements in existing decrees need augmenting to fully ensure
that all financial institutions examine and keep written findings in respect
of transaction, with no apparent economic or visible purpose, in the
respective
countries
which
insufficiently
applies
the
FATF Recommendations;
The Czech system needs augmenting to ensure that all appropriate
countermeasures envisaged in the FATF recommendations can be
instituted.
116
3.6
Suspicious Transaction Reports and Other Reporting (R.13 and SR.IV)
3.6.1
Description and analysis17
560. A new AML/CFT Law was adopted in June 2008 (Act No.253/2008 hereafter “AML/CFT Law”)
replacing Act No 61/1996. As a result the provision on the reporting requirement (section 18
paragraph 1) and other issues such as the notion of “suspicious transactions” (section 6) and the
definition of “money laundering and terrorist financing” (section 3) were amended.
561. The reporting requirement is prescribed in section 18 of the AML/CFT Law, according to which
if an obliged entity (i.e. reporting entity) detects a suspicious transaction, it has to report it to the
FAU without undue delay and no later than 5 days after the disclosure. If there is “a danger of
delay the obliged entity shall immediately report the suspicious transaction to the Ministry after
having discovered it”.
562. The scope of the current reporting regime requires the obliged entities (both natural and legal
persons) to report “suspicious transactions” as well as “any other circumstances supporting
a suspicion” under Section 6, paragraph 1 of the AML/CFT Law.
563. According to The Czech authorities the definition of a “transaction” set out in Section 4
paragraph 1 of the AML/CFT Law goes beyond the mere execution of operations. The private
sector representatives met on site expressed the same interpretation: the obligation to report and the
notion of transactions are wide enough to cover other circumstances, including funds deposited in
accounts, securities, safety boxes services and also proposed/attempted transactions or operations.
Furthermore, the descriptions of the cases reported to FAU corroborate such an interpretation.
564. The requirement to report suspicious transactions prescribed in Section 18 of the AML/CFT Law
is derogated by special provisions set out in Sections 26 and 27 of the same act according to which
professionals (i.e. auditors, chartered accountants, licensed executors, tax advisors, lawyers and
public notaries) shall report suspicious transactions to the respective Chamber. The Chamber is
then required to “examine the STR” and if the conditions set forth in the above mentioned Sections
are met, the Chambers shall send the STR further to the FAU (Sections 26 and 27 will be analysed
under Recommendation 16).
565. According to Section 6 paragraph 1 of the AML/CFT Law a “suspicious transaction shall mean a
transaction the circumstances of which leads to a suspicion of legitimisation of proceeds of crime
or financing of terrorism or any other circumstance supporting such a suspicion”. The definition
of “legitimisation of proceeds of crime” and “financing of terrorism” are also prescribed in Section
3 of the AML/CFT Law.
566. In addition to the definition mentioned above, the same section lists examples of the activities
that shall be perceived as suspicious:
“ a) cash deposits immediately followed by withdrawals or transfers to other accounts,
b) numerous transactions performed in one day or in a short period of time and not typical of
the given customer,
c) a number of various accounts opened by the given customer which are in obvious discrepancy
with their business activities and financial situation,
d) transactions that obviously make no economic sense,
17
The description of the system for reporting suspicious transactions in s.3.6 is integrally linked with the
description of the FIU in s.2.5, and the two texts need to be complementary and not duplicative.
117
e) assets handled by the customer which are in obvious discrepancy with their business activities
and financial situation,
f) an account which is not used for the purposes for which it had been opened,
g) customer performance which seems to aim at concealing their or the beneficial owner’s real
identity,
h) the customer or the beneficial owner who are nationals of a country which does not enforce,
or fails to fully enforce, measures to combat legitimisation of proceeds of crime and financing
of terrorism, or
i) a customer’s identification data the correctness of which the obliged entity has reasons to
doubt.”
567. Section 6, paragraph 2 of AML/CFT Law indicates the circumstances in which a transaction shall
always be treated as suspicious when:
“a) the customer or the beneficial owner be a person against whom the Czech Republic had
imposed international sanctions under the Act on Implementation of International Sanctions,
b) the goods or services involved in the transaction fall in the category against which the Czech
Republic had imposed international sanctions under the Act on Implementation of International
Sanctions, or
c) the customer refuses to reveal identification data of the person they are representing or to
undergo the due diligence process.”
568. The first two circumstances refer to cases involving persons against whom international sanctions
have been imposed under the International Sanctions Act.
569. The Czech authorities and the representatives of the industries met on site indicated that the list
set out in Section 6 is not to be considered as exhaustive and the circumstances in which a
suspicious transaction is to be reported were not limited to those indicated in the Section 6 of the
AML/CFT Law as mentioned above. However, the fact that the AML/CFT Law contains a list of
suspicious transactions could have a negative impact on the reporting system as the reporting
entities may rely, exclusively or partially, on the listed transactions. Indeed, the data available
indicates that the wording of the provision might cause difficulties in this respect as the percentage
of STRs reported by banks is much higher than those reported by other obliged entities (in 2009
1,932 out of 2,224 STRs - around 87% - originated from banks). It is to be underlined that the
transactions listed are typical banking operations, which correspond to the activities of the banking
sector but not to the other obliged sectors (i.e. securities and insurance sector, professionals,
casinos and other DNFBP).
570. It is noted that under Section 21, paragraph 5, letter a) of the AML/CFT Law obliged entities
shall issue internal procedures with a “detailed checklist of suspicious transactions indicators
relevant for the given obliged entity”. This list is reviewed by the FAU that may request the
obliged entity to amend it in order to develop a proper “tailor-made” checklist for each sector.
Evaluators have also been informed that representatives and associations of several obliged entities
(including professionals and casinos) have requested the assistance of the FAU in order to draft
their respective checklists.
571. According to Section 20 paragraph 1 of the AML/CFT Law, the obliged entities may suspend the
transaction (i.e. “the obliged entity may execute the customer’s transaction recognised as
suspicious no earlier than 24 hours after the Ministry had received the suspicious transaction
report”) when the operations required by customers may facilitate ML/TF. Further action may be
taken by the FAU in order to prolong the period of suspension.
572. The evaluators were informed that the FAU maintains daily contact with the industries, organises
seminars for the private sector and that a commentary interpreting the AML/CFT Law was
118
published in collaboration with the FAU. This commentary contains an additional list of indicators
of suspiciousness listed below.
Commentary on the Czech AML/CFT Act (Tvrdý/Bártová, 2009)
Section 6 (1), p. 111-112
Other situations, that can happen in the activity of the obliged entity regarding its line of business
and that have to be considered as suspicious transactions, should be stated by each obliged entity according
its business activity in its “Internal Procedure” (Section 21). There could be a wide range of characteristics
of suspicious transaction and it is upon the obliged entity to determine which of them itself will be the
reason for the suspicion of the transaction or whether several partial characteristics together will be
required.
Following situations could by considered as examples of common characteristics of suspicious
transaction:
Client is nervous, refuses identification, states untrue identification or client due diligence
data (e.g. concerning origin of money or line of business).
Criminal history or his connection to criminal organized groups are known.
Client has connection to AML risk areas (non-cooperative countries, tax heavens) or areas
risk for carrying out international sanctions.
Identification documents are strange (possible fake).
Client acts as if he represents another person, is accompanied or tracked by persons that
want to be anonymous.
Client asks for unusual transaction, is in a hurry, exacts cash payment etc.
Client operates several enterprises with similar line of business and transfers money
among them.
Client operates enterprises that are presumably connected with criminal organized groups
(e.g. erotic services, disco or other night clubs, trade with military material, especially
weapons etc.).
Client makes non-profit transactions intentionally.
Client requires unusual settlements of transactions, unusual or suspicious purposes of
payments.
Unusual operations wits securities.
Transactions with inadequate contractual fine.
Concluding agreements with high advance payment followed by their cancellation.
Deposits of several persons to the same account.
Repeated openings and closings of bank accounts in a short time period.
As it concerns obliged entities according to the Section 2 (1j,k) for example:
Frequency of transactions (pawns, auctions) and the types of things sold (pawn, in
auction) regarding the possibility of their legitimate acquisition.
Regular forfeiture of pawns.
Sale of valuable things by persons without property or regular salary (homeless
people) etc.
Other characteristics could be for example transactions:
exceeding (for one client or for a group of clients of the same type) usual value;
made in unusual currency or in several currencies at the same time;
made with high amount of low-value means of payment or with unusual carrying of
money (plastic bags, pockets etc.);
aiming to the areas without clients business interest;
in the height right bellow the threshold of identification or client due diligence;
gathering low payments from different areas on one account or on the other hand their
unusual subdivision;
among different accounts of one client etc.
119
573. The following scheme illustrates the entities involved in reporting regime and the main related
provisions (sections) of the AML/CFT Law.
Diagram 6: Reporting regime
Reporting regime
OBLIGED ENTITIES
Chambers
Lawyers /
Public Notaries
Chambers
Sec. 35.5
Auditors /
Tax Advisors
Sec. 35.5
PROFESSIONALS
(as indicated in Sec.2 except
‘Professionals’
CNB
Other
Supervisory
Authorities
574. Section 6 paragraph 1 of the AML/CFT Law provides for a general requirement to report
transactions where there are circumstances which lead to a suspicion of financing of terrorism. The
definition of financing of terrorism is prescribed in Section 3, paragraph 2 of the AML/CFT Law
as follow:
“a)gathering or providing financial or other assets knowing that such assets will be, in full or in
part, used to commit a crime of terror, terrorist attack, or a criminal activity intending to
facilitate or support such crime, or to support an individual or a group of individuals planning
such crime, or
b)acting with the intention to remunerate or compensate a person who had committed an act of
terror, terrorist attack, or a crime intended to facilitate or support such crime, or to an individual
close to such person as defined by the Criminal Code; or collecting assets to pay such
remuneration or compensation”.
575. The same article specifies that the activities described in the paragraph above “may, fully or
partially, take place in the territory of the Czech Republic or, fully or partially, outside the
territory of the Czech Republic”.
576. The definition of “financing of terrorism” set forth in the AML/CFT Law seems to cover broadly
the circumstances indicated in Recommendation 13.2.
577. Furthermore, Section 6 paragraph 2 letters a) and b) of the AML/CFT Law define a transaction as
suspicious where: a) the customer and/or the beneficial owner are persons against whom The
Czech authorities have posed international sanctions under Act 69/2009 on International Sanctions
or b) the goods and service involved in the transaction fall in the category against which The Czech
authorities have imposed international sanctions under the same Act.
120
578. The representatives of the private sector met on site were well aware of the reporting
requirements on “financing of terrorism”. However, the FAU might wish to consider issuing
guidance in this regard to reinforce the approach.
579. Finally, in 2009 and in the first quarter 2010, the FAU received two STRs related to financing of
terrorism.
580. The 3rd MER recommended that “an explicit requirement to report attempted and completed
(executed) transactions” should be introduced in the legislation (paragraph 656 of the 3rd MER).
The new definition of “transaction”, prescribed in Section 4, paragraph 1 of the AML/CFT Law
seems to be broader than the former provision (now including use of the words “any interaction of
the obliged entity with another person should such interaction lead to attempted handling of the
other person’s property or providing services to such other person”), but arguably not so explicit or
clear as required by FATF Methodology.
581. The Czech authorities have indicated that according to Sections 4, 6 and 18 of the AML/CFT
Law all suspicious transactions, including attempted transactions, are to be reported.
582. As regard statistics, out of the 391 STRs received in the first quarter of 2010, 53 were attempted
transactions (around 14%), of which 46 from banks, 5 from Centre of Securities, 1 from
an insurance company and 1 case has been developed at FAU level.
583. In addition the FAU has provided the evaluators with a sample of STRs related to attempted
transactions:
i) a person requested to deposit cash without providing information on the source of these funds,
the bank refused the operation and sent a STR to the FAU;
ii) a person requested to cash several checks, the banks refused to perform the transaction due to
the amount involved and reported the case;
iii) a professional received the order to cash securities, he/she refused and reported the case in the
light of the fact that there were not sufficient information;
iv) an insurance company received a proposal from a person to conclude an insurance plan with
the clause to close after few days. This person was reported to FAU.
584. Furthermore, the representatives of the industries met during the on site visit confirmed that they
were indeed reporting attempted transactions.
585. The AML/CFT Law does not contain any specific limitation on the reporting requirement.
The notion of “legitimisation of proceeds of crime” set out in the AML/CFT Law does not imply
that there is such a limitation on the reporting requirement.
586. A compliance officer of a financial institution informed the evaluators that there were no
limitations relating to tax matters when reporting STRs.
587. The provision set out in Section 32, paragraph 2 of the AML/CFT Law requires the FAU to
disseminate cases which are of interest to the tax authorities, unless it has referred a criminal
complaint. Thus the requirements of criterion 13.4 are covered.
588. According to Section 6 of the AML/CFT Law a suspicious transaction is “a transaction the
circumstances of which lead to a suspicion”. These circumstances refer to money laundering,
financing of terrorism and other situations supporting such suspicion. This definition is broad
enough to cover all domestic criminal acts other than money laundering and financing of terrorism.
121
589. However, the FAU might wish to consider issuing specific clarifications on this matter.
Special Recommendation IV (rated LC in the 3rd round MER)
590. As discussed under Recommendation 13 the “reporting requirement” is set forth in Section 18 of
the AML/CFT Law, while the notion of “suspicious transaction” is defined in Section 6 paragraphs
1 and 2.
591. The definition of “financial of terrorism” is set out in Section 3, paragraph 2 of the same act.
“The financing of terrorism shall mean:
a) gathering or providing financing or other assets knowing that such assets will be, in full or
in part, used to commit a crime of terror, terrorist attack, or a criminal activity intending to
facilitate or support such crime, or to support an individual or a group of individuals
planning such crime, or
b) acting with the intention to remunerate or compensate a person who had committed an act of
terror, terrorist attack, or a crime intended to facilitate or support such crime, or to an
individual close to such person as defined by the Criminal Code.”
592. As indicated above The Czech authorities have informed the evaluators that in 2009 and in the
first quarter of 2010 the FAU received 2 STRs related to financing of terrorism. After analysis, the
FAU decided to close the cases, as there were no grounds.
593. One of the cases related to funds (2.000 EUR) transferred from a third non European country
account for the benefit of the account of a European living in the Czech Republic. The ordering
client was identified as a former presumed terrorist. Czech Authorities indicated that the
counterpart FIU was not in a position to provide them with more detailed information concerning
this case on the basis of their request. Czech Authorities explained to evaluators that the FAU
cooperated with the Organised Crime Unit (however, details were not provided). The investigation
was quite extensive though finally the case was not taken forward at that time.
594. Furthermore the Czech FIU received several STRs in relation to FT concerning bank transfers
sent by entities listed on the OFAC list or other lists that are not binding in the Czech Republic.
In most cases there were mistakes in identification due to the lack of information.
595. The countries have to ensure that Criteria 13.3 (attempted transactions) and 13.4 (requirement to
include tax based suspicions) (in R.13) also apply to the obligations under SR.IV. It appears that
tbese criteria under R.13.3 and R.13.4 are also covered.
Effectiveness and efficiency (R.13 and SR.IV)
596. The number of STRs received by the FAU has remained stable in the last 3 years (more than
2,000 disclosures per year). The main reporting entities are banks as illustrated in the table below.
597. The existence of a list of suspicious transactions in the AML/CFT Law could have negatively
influenced the reporting by financial institutions, as approximately 90% of the STRs were reported
by some of the banks (as indicated by the authorities 80% of the STRs originate from 9 banks out
of the 37 operating), while the remaining financial intermediaries have reported approximately
10% of the total amount.
598. The table below is a breakdown of the main categories of reporting entities (Banks, Other Nonbank Financial Institutions, Professionals and Other DNFBP) in terms of number of STRs sent to
the FAU and the related percentage.
122
Table 20: Main categories of reporting entities
2005
2006
2007
2008
2009
I Q 2010
STR
%
STR
%
STR
%
STR
%
STR
%
STR
%
3.163
92,9
3.243
93,2
1.887
92,1
2.090
90,1
1.932
86,9
317
81,1
Other Non
Bank FIs
201
5,9
198
5,7
137
6,7
215
9,3
224
10,1
61
15,6
Professionals
13
0,4
2
0,1
2
0,1
0
0,0
3
0,1
1
0,3
[Other DNFBP
(*)
27
0,8
37
1,0
22
1,1
15
0,6
65
2,9
12
3,0
3.404
100
3.480
100
2.048
100
2.320
100
2.224
100
391
100
Banks
Total
(*) Relevant to R.16.
599. The table above clearly indicates that over the last 3 years, both in absolute terms and in
percentage terms, the number of STRs sent by “Other Non-Bank Financial Institutions” (financial
companies, insurance, money transfers and exchange offices) is increasing.
600. The following graph illustrates the total amount of STRs received from the main categories of the
obliged entities. Over the last three years (2007-2009) the number of cases has decreased in
comparison to 2005 and 2006 data, nevertheless, during the last two years, the percentage of the
criminal complaints disclosed of the total amount of STRs received has increased, as indicated in
the table below.
Diagram 7: STRs received by FAU
123
601. The table below indicates the numbers of Criminal complaints originated, per year, from the
STRs received by FAU. The figures show an increase on the ratio of the Criminal complaints
disseminated in terms of STRs received over the last three years (3.36% in 2008, 8.59% in 2009
and 18.67% in the first quarter of 2010).
Table 21: Numbers of Criminal complaints originated
2005
2006
2007
2008
2009
IQ2010
208
137
102
78
191
73
Total STRs received per year
3.404
3.480
2.048
2.320
2.224
391
Percentage of Crim. Comp. on Total STRs
6.11%
3.94%
4.98%
3.36%
8.59%
18.67%
Criminal Complaints
602. According to the information provided by the FAU, around 90% of the criminal complaints
notified to the AML Division of the UCCFC have originated from STRs reported by banks.
603. Considering all the information and data provided, the evaluators consider that the effectiveness
of the reporting regime may be negatively influenced by the fact that the listed (suspicious)
transactions established in the AML/CFT Law are mainly banking operations.
604. Nevertheless, the FAU was also able to provide a detailed picture of the most reported type of
cases described below:
•
•
•
•
•
•
•
•
cash deposited and then transferred abroad;
use of private accounts for business transactions;
internet banking transactions;
transactions without logical sense (without economic or legal justification);
account does not reflect economic profile of the client;
large transactions;
financial transactions between companies in oil and metal sectors for fraud purpose;
transfers to tax havens.
605. The FAU has also identified the main trends as being:
•
•
•
the activities of criminal groups which launder financial means related to smuggled goods
from Europe to Asia through the territory of the Czech Republic;
financial transactions related to Asia Pacific states namely cash deposits and wire transfers
of funds from and to these countries, the funds supposedly being related to drug
trafficking;
cybercrime and internet banking activities.
606. As regards financing of terrorism, the requirements set out in the AML/CFT Law are broadly in
line with the FATF Recommendations (Criteria 13.2 and SR.IV.1). Nevertheless the Czech
reporting regime establishes two obligations: i) to report STRs in case of suspicious of “financing
of terrorism” and ii) to report transactions related to International Sanctions Act for “designated
persons”. These requirements, if not properly understood, could impact on the effectiveness of the
reporting regime. For this reason, appropriate guidelines should be disseminated among obliged
entities.
124
Recommendation 13
607. The reporting requirement related to the financing of terrorism is broadly adequate even if the
definition of the “financing of terrorism” in the AML/CFT Law is not fully consistent with the
wording of the criteria 13.2 and SR.IV.1. In fact, representatives met onsite were well informed
about the reporting requirements which go beyond the “designated persons” (under the UNSCRs).
The STRs received demonstrate awareness among the obliged entities of the reporting obligations.
In order to avoid any misunderstanding between the two different reporting obligations (STRs
related to financing of terrorism, and reporting obligations in case of so-called “designated
persons” by international organisations), The Czech authorities should consider introducing
appropriate guidance on the reporting requirements.
608. Although the reporting requirement set out in the AML/CFT Law appears to be sufficiently
sound, The Czech authorities should also consider:
•
•
amending the law in order to avoid the listing of (suspicious reporting) transactions or, at
least, issue specific guidelines to all obliged entities (including financial institutions) on the
reporting requirements in the light of FATF and MONEYVAL Typologies;
issuing guidance on the identification of suspicious transactions for all obliged entities.
Special Recommendation IV
609. To cover fully the requirements set out in SR.IV The Czech authorities should consider issuing
detailed and updated regulations or guidelines on how to discover and/or determine the
circumstances which lead to a suspicion of financing of terrorism and/or that funds are linked or
related, or to be used for terrorism, terrorist act, or by terrorist organisations or by those who
finance terrorism. The Czech authorities could consider using the FATF and other FSRB
(including MONEYVAL) documents containing cases studies, typologies and indicators of TF.
Rating
R.13
LC
SR.IV
LC
• The efficiency of the reporting requirement is negatively affected
by the listing of (suspicious reporting) transactions prescribed by
AML/CFT Law (which are mainly banking operations).
• The lack of guidance on TF indicators to assist the financial
institutions negatively affects the SR.IV. obligations.
610. Since the 3rd MER some progress has been achieved although some representatives of the
financial institutions and professional organisations still advised that they received little general or
specific feedback from the FIU on STRs. Some institutions/organisations stated that in certain
cases they obtain information on the results of the reports unofficially.
611. On the other hand, “Moneyweb”, established in 2005, provides a two way communication system
with some of the (major) banks. The reporting system operates via an encrypted net between the
FIU and these entities that enables information on the receipt of the report to be sent. The FIU also
requests additional information from the sender as and when necessary. It is noted that “Moneyweb
lite”, used by the other institutions is a one-way communication tool and does not provide a
mechanism for feedback to the reporting institutions.
125
612. The evaluators formed the impression that little had changed with regard to the prohibition in the
Law on transmitting information relating to STRs as stated in section 648 of the third round report.
3.6.2
613. The FIU and/or CNB should issue specific guidelines to flesh out the requirements of the
AML/CFT Law to assist the obliged entities in carrying out their responsibilities.
614. All professional bodies should issue guidelines to their members. Guidelines issued by
professional bodies should be comprehensive, and in particular they should include issues related
to the area of the financing of terrorism (CFT).
615. The FIU should provide feedback to the financial entities and other obliged entities over and
beyond the general and statistical information.
3.6.3
Compliance with Recommendation criterion 25.2
Rating
R.25
c.25.2
PC
• The FIU provides general feedback, but the requests for feedback as
required by the FATF methodology are not met in light of the strict
implementation of the Law.
Internal controls and other measures
3.7
Internal Controls, Compliance, Audit and Foreign Branches (R.15 and R.22)
3.7.1.
616. The 3rd round Mutual Evaluation Report recommended that:
•
•
•
the AML Act includes a requirement to develop appropriate compliance management
arrangements; the reporting officer should become a compliance officer with broader
responsibilities, appointed at managerial level (the CNB Provision N°1 will need to be
amended accordingly);
the AML Act includes an audit requirement for AML/CFT arrangements and the screening of
employees; and
the AML and CFT need to be addressed more specifically in the various requirements of
internal AML/CFT arrangements.
617. The AML/CFT Law requires obliged entities to establish internal procedures and control to carry
out their AML/CFT responsibilities and obligations. Section 21 (5) of the AML/CFT Law specifies
the contents of the internal procedures required under Section 21 (1) of the same law. This
includes, inter alia, a detailed checklist of suspicious transaction indicators relevant for the given
obliged entity, CDD and identification processes, adequate and relevant methods and procedures to
assess and manage risks and perform internal controls and supervision in respect of AML/CFT and
record retention. There is however no reference that the internal procedures should be
communicated to the employees. Although it can be presumed that such internal procedures are
included within the training programme of staff (Section 23 of the AML/CFT Law) there is no
126
specific reference to the availability of internal procedures to employees. However, The Czech
authorities maintain that this requirement could be applied through the general requirement that
employees have to comply with internal rules.
618. Section 22 of the AML/CFT Law provides for the appointment of a contact person (interpreted to
equate compliance officer by The Czech authorities) to transmit suspicious transaction reports and
to maintain regular contacts with the FIU, unless such responsibilities is entrusted to the statutory
body of an obliged entity (this is conditional on the size, management structure, or number of
employees). Similar to the findings during the 3rd round evaluation, there is no requirement that the
contact person should be at the management level. Moreover, there is no reference in the
AML/CFT Law or other guidance on other responsibilities of the contact person such as the
determination or filtering of relevant information for the purpose of determining whether or not the
information or other matter contained in the report gives rise to a knowledge or suspicion that a
person may be involved in money laundering or funding of terrorism. Although Section 21 (5) (f)
of the AML/CFT Law requires that internal procedures should include a description of steps taken
by the obliged entity in respect the appointment of persons to evaluate a STR, there is no link or
reference that this should be the contact person, whose responsibilities arising from the law can be
perceived only as a point of contact point with the FIU.
619. CNB Decree 281/2008 Coll., applicable to most but not all financial institutions, specifies in
Article 6 (2) that institutions should ensure that persons assessing a suspicious transaction has
access to the relevant information. All the contact persons met on-site, showed broad knowledge of
the AML/CFT framework, their responsibility and appeared to have access to the necessary
information although it was not apparent whether all, or most of them, were in a position to filter
relevant information for STR reporting.
620. Section 21 (5) (d) requires that obliged institutions have adequate and relevant methods and
procedures to assess and manage risks and perform internal controls and supervision of compliance
with the AML/CFT Law.
621. Article 8b on management and control system at banks of Act No. 21/1992 Coll. of 20 December
1991, on Banks stipulates that in respect of the internal control system, banks shall always have an
internal audit function, based on proportionality, which carries out ongoing control of compliance
with the bank’s legal obligations, including those arising from the bank’s internal rules. In this
respect the CNB highlighted that they have some overall concerns on the quality of internal
coverage of AML/CFT procedures which are generally covered in a periodical (e.g. 3 years) cycle
and do not necessarily evaluate the whole process. CNB Decree 123/2007 Coll. section 33 (2)
provides for the independence of the internal audit function.
622. CNB Decree No. 281/2008 Coll. stipulates that, as part of their internal control activities,
institutions shall, at least once a year, draw up a report assessing the institution’s activity in the
field of preventing the legitimisation of the proceeds of crime and financing of terrorism. The
Decree also stipulates that, as part of the internal control activities, institutions shall, at least once a
year, draw up a report assessing the institution’s activity in the field of AML/CFT regarding:
whether the procedure and measures applied by the institution in respect of prevention of
the AML/CFT are sufficiently effective; and that
the institution’s system of internal principles, procedures and control measures had
shortcomings, and what risks this might create for the institution.
623. Although the above suggests that this is an internal audit function, it is unclear whether it is the
auditors or contact persons who are obliged to carry out this obligation as the evaluators were
informed that in practice the report is usually made by the MLRO. The insurance, investment
127
companies, investment firms and investment funds are covered by specific sectoral legislation to
ensure an independent audit function. The CNB assured the evaluators that an independent audit
function covers AML/CFT issues and is generally adequately resourced.
624. Indeed, one institution confirmed that as part of its internal audit procedures, it carries out on-site
visits of branches to interview staff and review pattern of transactions.
625. While during the 3rd round evaluation, the CNB had stated that in practice an assessment report is
drawn up by an external auditor, the situation has changed. According to the CNB, the assessment
report is usually drawn up by MLRO or CPLO supplemented occasionally by the Legal
Department.
626. The notations included in the 3rd Mutual Evaluation Report remain relevant. Section 23 of the
AML/CFT Law specifies that obliged entities shall organise, at least once every 12 calendar
months, training to all staff members who may in the course of their professional obligations, come
in contact with suspicious transactions, and that all appointees to such positions shall be trained
prior to taking their appointment. The training shall concentrate on types and features of suspicious
transactions and steps due to be taken in detecting such transactions. Records of participants and
training agenda have to be retained for at least 5 years. Although the evaluators were not in a
position to verify such records, on-site interviews indicated that annual programmes (different
programmes differentiated according to grade) are held.
627. There is no explicit reference in the AML/CFT Law or CNB decrees regarding the procedures for
screening employees. However, as a normal practice, confirmed by financial institutions during on
site interviews, institutions confirm the integrity of new employees through requiring a clean police
conduct of the prospective employee. Some even require new entrants to pass a test on AML/CFT
procedures. One institution stated that in addition it requires screening by a third party and monitor
the new employees during the testing period.
628. The Czech authorities pointed to Section 22 (4) of the AML/CFT Law as authority for the
AML/CFT compliance officer (being below level of senior management) having direct contact
with senior management. The Czech authorities indicated that this would allow the compliance
officer to have access to senior management without the intermediary of his/her direct line
manager. The provision refers to contact between the compliance officer and the “statutory and the
supervisory bodies”. The evaluators were told that this formulation was intended to cover senior
management of the financial institutions (supervisory board). Although there may be other
interpretations of this term, the evaluators accepted the Czech position on this. However, they are
not in a position to comment on how effectively this provision works in the practice.
629. Interviews with contact officers of the financial institutions met on-site indicated a significant
understanding of responsibilities. All implied that they have access to the required information
with some indicating an organisation structure enabling further analysis of STRs submitted by
front office personnel.
630. The CNB confirmed that they ascertain that inspected institutions do have an internal policy. In
turn, all obliged institutions interviewed on-site stated that they submit their internal procedures
and controls to the FIU in line with the AML/CFT Law requirement (Section 21 (6)). Some contact
persons indicated that were more comfortable with a rule-based approach rather than a risk-based
one with many indicating that they receive little or no feed back from the FIU on risk-based
consideration which they considered would be useful.
128
631. All institutions interviewed stated that they carry out regular training programs to employees
(some also require new entrants to pass an AML/CFT procedure test). The FIU provides regular
trainings to obliged persons. It stated that the trainings provided, complemented by on-going
discussions resulted in a higher quality of STRs and consequently higher quality of notification
sent to the law enforcement authorities. This is borne out by the statistics. Moreover, all
interviewed financial institutions confirmed that they are satisfied with the cooperation and
contribution provided by the FIU in respect of training provided to staff, providing typologies for
discussion.
632. At the time of the on-site visit, there was only a limited number of branches of Czech financial
institutions operating abroad (concerning the banking sector for instance, only one subsidiary and
one branch of a Czech commercial bank is located abroad - both in Slovakia- and thus subject to
the Slovak AML/CFT requirements).
633. Though in comparison with the situation at the time of the third round evaluation there is some
progress made in regard to foreign branches and subsidiaries of financial institutions there are still
deficiencies in place that have not been addressed.
634. Financial institutions in the Czech Republic are required to ensure that their foreign branches and
subsidiaries located in countries that are not members of the EU or the European Economic Area
apply the practice of customer due diligence and record keeping in the scope that is at the least
required by the law of the European Communities (Section 25(4)). This requirement applies to part
of the FATF recommendation (5 and 10) and does not extend the requirement to all of the FATF
Recommendations.
635. There is no such requirement in respect of branches and subsidiaries of the institution located in
EU Member States. The Czech authorities explained that it is presumed that AML/CFT obligations
in EU Member States are equivalent to those existing in Czech Republic due to the fact that all EU
Member States are obliged to implement the third AML/CFT Directive, hence branches and
subsidiaries of Czech Republic are considered to be also obliged entities under the relevant
AML/CFT legislation of other EU Member States. Nevertheless, such obligation should be applied
also to branches and subsidiaries in other EU Member States.
636. Financial institutions in Czech Republic are required to inform the Ministry when a foreign
branch or subsidiary in countries that are not members of EU or the European Economic is unable
to observe appropriately the practice of customer due diligence and record keeping because this is
prohibited by local (i.e. host country) laws, (Section 25(4)).
637. In such a case of discrepancy between Czech and host country regulations, the obliged entity
shall adopt appropriate supplementary measures to effectively mitigate the risk of exploitation for
the legitimisation of proceeds of crime or financing of terrorism, and to prevent the transfer of
these risks to the territory of the Czech Republic and other member states of the European Union
or the European. There is, however, no requirement to apply the “higher standard” as required in
essential criteria 22.1.2. Once again this requirement is limited to “third countries”.
638. As mentioned above, the Czech institutions have very limited presence outside the Czech
Republic. As for subsidiaries or branches (that are providing banking services) of Czech banks
outside the Czech Republic, there is only one subsidiary (located in Slovakia) and one branch (also
in Slovakia). It was not sufficiently clear whether such subsidiaries/branches are required to apply
consistent CDD measures at the Group level.
129
639. The limitation of this requirement to subsidiaries and branches in third countries (e.g. non-EU)
significantly limits its scope. Overall this has a material impact on the effectiveness of
Recommendation 22 on branches and subsidiaries operating outside of Czech Republic.
3.7.2. Recommendation and comments
Recommendation 15
•
The FIU should consider making an explicit reference requiring obliged entities to make
available the internal procedures to its employees.
•
The AML/CFT Law or CNB Decree should be amended to require that the contact
officer should be appointed at managerial level with the relevant responsibilities, which is
currently limited in scope to be the contact person with the FIU.
•
The FIU should consider issuing guidelines to specify what is required and the necessary
procedures for the contact person to carry out his responsibilities effectively. Furthermore,
these guidelines should describe the necessary control measures, including required
monitoring systems and provide greater guidance on what is actually expected from a riskbased approach.
•
A legal requirement should be introduced ensuring that obliged entities screen prospective
employees to ensure high standards.
•
To amend the law that requires different obligations in respect of “compliance officers”
(Contact person) to small and larger obliged entities and standardise requirements.
Recommendation 22
•
It is recommended to extend the requirement in Section 25(4) to the FATF
Recommendations in general, and not only to recommendations 5 and 10.
•
A requirement should be introduced to ensure observing AML/CFT measures in respect of
branches and subsidiaries of the institution located in EU Member or the European
Economic Area.
•
A requirement should be introduced to the effect that where the minimum AML/CFT
requirements of the home and host countries differ, branches and subsidiaries in host
countries should be required to apply the higher standard, to the extent that local (i.e. host
country) laws and regulations permit.
3.7.3. Compliance with Recommendations 15 and 22
R.15
Rating
PC
• There is no enforceable requirement that the compliance officer should be
appointment at a managerial level with extended scope of responsibilities;
• Within the limited scope of responsibilities of the contact person it is not
evident that these should have timely access to information;
• There is no requirement that the contact person is required to filter STRs ;
• There is no requirement that obliged entities should make available the
internal procedures to the employees;
• There is no legal obligation on obliged entities requiring them to put in
place screening procedures to ensure high standards when hiring
employees;
• In respect of smaller obliged entities, compliance (contact) persons are
delegated to a statutory body of the obliged entities.
130
Rating
LC
• There is no requirement to ensure that foreign branches and subsidiaries
observe AML/CFT measures consistent with the FATF Recommendations
in general;
• No requirement to apply the higher standard where requirements differ;
• Requirement to ensure observing AML/CFT measures in respect of
branches and subsidiaries is limited to institutions located in “third
countries”.
R.22
3.8
The Supervisory and Oversight System - Competent Authorities and SROs /
Role, Functions, Duties and Powers (Including Sanctions) (R.23, 29, 17 and 25)
3.8.1
640. According to Section 35 of the AML/CFT Law, the Ministry (FIU) has overall responsibility to
ensure that all obliged financial and non financial institutions comply with the obligations
contained in the AML/CFT Law. In addition, various authorities and SROs have responsibility in
their specific industries, as described below.
641. The Czech National Bank (CNB) is responsible for general supervision of the entire financial
market in the Czech Republic (Article 44 of the Act No. 6/1993 Coll., on the Czech National
Bank). The entities which are supervised by the CNB (the responsibility for some of these entities
was transferred to the CNB in April 2006) are:
•
Banks, foreign bank branches, credit unions, electronic money institutions, branches of
foreign electronic money institutions, small-scale electronic money issuers, payment
institutions and small-scale payment service providers, and of the sound operation of
the banking system;
•
Investment firms, securities issuers, the central depository, other entities keeping a
register of investment instruments, investment companies, investment funds, settlement
system operators, organisers of investment instrument markets and other persons
specified in special legal rules governing capital market undertakings (Act No. 15/1998
Coll., on the securities market supervision);
•
Insurance corporations, reinsurance corporations, pension funds and other entities
active in insurance and private pension schemes pursuant to special legal rules (Act No.
277/2009 Coll., on insurance, Act No. 42/1994 Coll., on private pension insurance, and
Act No. 38/2004 Coll., on insurance intermediaries and independent loss adjusters);
•
The safe, sound and efficient operation of payment systems pursuant to a special legal
rule (Act No. 284/2009 Coll., the Payments Act);
•
The activities of other entities that have a licence or registration pursuant to special
legal rules (i.e. mainly exchange bureaus, Act No. 219/1995 Coll., Foreign Exchange
Act).
131
Recommendation 23 (23.1, 23.2) (rated PC in the 3rd round MER)
642. In the CNB, there are two specific departments of the supervisor which do assessment: the On–
Site Supervision Division and the Off-site Supervision Division. These two divisions work closely
with one another on a daily basis (according to the circumstances).
643. Section 35 (1) of the AML/CFT Law specifies that the FIU is the supervisory authority
responsible for administrative supervision in respect of AML/CFT. Moreover, the CNB also carries
out supervision for institutions subject to Act N° 6/1993 Coll.
644. Section 37 (2) of the AML/CFT Law empowers relevant professional chambers (relating to
lawyers, public notaries, auditors, licensed executors and tax advisors) to check compliance with
the AML/CFT Law upon a written motion by the FIU. So far, no inspection was carried out under
Section 37. The evaluators were informed that the intention of this section is to clarify facts
regarding STRs and not to require an inspection to be carried out.
645. Most of the supervisors had no particular difficulty to have the entities under their supervision to
comply with the AML/CFT regime. However in practice there are differences in the tools and
motivation of the various supervisors. In general, the examiners felt that some chambers should
increase their oversight of the DNFBP under their supervision.
646. There was almost no change in this area from that which was described in the 3rd round
evaluation report. The FIU remains the universal supervisor. The CNB has assumed a wider remit
since the last evaluation for inspection of the financial sector generally. Their powers in relation to
R.29 remain as previously described and are limited to compelling documents from the entities
concerned in the particular inspections.
647. FIU powers to perform administrative supervision are set out in Section 35 of the AML/CFT
Law. Under the Law, the Ministry (FAU) is the responsible authority for administrative
supervision of compliance with the AML/CFT Law. Section 35 does not set out the powers of the
FIU in respect of administrative supervision. These are to be found in the Act on State Inspection
N° 552/1991 Coll. The FIU advised that they have broader access to information from all obliged
entities (except where professional secrecy applies, such as lawyers) and can carry out on-site
inspections.
648. As mentioned in Section 35 (1), the compliance with obligations set out in the AML Act may be
by another supervisory institution, such as the CNB. From the information provided on site, the
examiners understood that the CNB has the power to request additional information and to carry
out on site inspections to review policies, procedures, books and records and to carry out sample
testing. The CNB can compel the production of documents (without a court order) in respect of all
documents relating to accounts, business relationships and transactions, though it is unclear
whether there is a power to sanction for refusal to disclose information t a supervisor.
649. The FIU, the CNB and the other financial supervisors have generally the means and authority to
obtain from the financial institutions and/or their manager’s or comply with requirements (they can
draw their attention to the insufficiency, issue warnings or reprimands etc.).
650. Under Section 36 of the AML Act the FIU has the power to point out insufficiencies of obliged
entities, discuss them, and propose necessary changes. When the obliged entity does not conform
to minimum standards, the FIU has the power to penalise them and (in extreme cases) revoke a
business licence.
132
651. By virtue of the AML Act (section 45-51), the FIU can impose and levy fines in case of non
compliance with the Act. These sanctions only may apply to the entity, not their managers,
directors or employees. The issue of sanctions is examined in detail under Recommendation 17
underneath.
652. From 2007 to (May) 2010, the CNB carried out a total of 65 on-site targeted inspections relating
to AML/CFT in the financial sector (not including non-bank foreign exchange). This is an average
of 18 on-site inspections per year. Considering that the CNB supervised on average 345 financial
institutions during the period 2007-2009, this implies that the CNB carries out an on-site inspection
on AMLCFT issues on average once every 20 years per institution. In this respect, it is noted that
on-site inspections within banks, which account for about 50% of all the assets in the financial
sector, the CNB has carried out an on-site inspection in 3 banks per year (compared with the
average of 38 banks in the system during 2007-2009). This implies that only about 8% of the banks
are covered each year, i.e. one bank inspection every 12 years (see table 2 in para 41 and para 706).
The inspections carried out at other financial institutions are even lower than that carried out in
respect of banks.
653. The Czech authorities consider that the number of inspections are commensurate with the
risk-based approach since they focus on those institutions which are determined to have the highest
risk, including that related to ML/FT. In this respect, the CNB informed the evaluators that it takes
into account a number of risk factors supplemented by expert knowledge to determine the focus of
risk-based inspections. However, it was not clear to the evaluators how, in the absence of a
(national) analysis to determine the most risky sectors within the Czech Republic, the authorities
are in a position to ensure that the most risky sectors are targeted. It was also unclear how the risk
is applied to determine the supervisory focus and the allocation of resources. In this respect, it was
difficult for the evaluators to reconcile how the (lengthy) inspection cycle can catch all financial
obliged entities at some point. Overall the absence of a (national) risk assessment strategy to
determine the most risky areas in terms of ML/FT, the current approach to determine the
supervisory focus together with the very long inspection cycle can result in some sectors of the
financial institutions effectively being outside the supervisory scope. The Czech authorities
contend that the supervisory concept is principle-based rather than rules based. However, the
absence of a strategy to identify the most risky areas for MLFT, the long cycle and the low number
of inspections, together with the low level of identified infringements, gives rise to a perception
that the risk-based approach undertaken in the Czech Republic is very light touch and may
potentially result in risky areas not being targeted.
654. The representatives of the CNB mention that each audit report is transmitted also to the FIU to
obtain their feedback.
655. It seems that the supervisors have broadly adequate powers to monitor, conduct inspections and
enforcement of sanctions, to ensure compliance by financial institution. In practice, no
administrative fines have been imposed by the FIU on the request of the CNB or on FIU’s own
initiative. As noted, its unclear whether there is a power to sanction for refusal to disclose
information to a supervisor and sanctions do not apply for managers and directors.
133
Recommendation 30 (all supervisory authorities) (rated LC in the 3rd round MER)
Recommendation 30
656. There are 30 staff who carry out on-site inspections in the banking sector, 3 of whom are
AML/CFT experts, and there are 50 staff that carry out on-site inspections in the non banking
sector (insurance, securities market etc.), 5 of whom are AML/CFT experts.
657. The Supervisory Division of the FIU at the time of the onsite visit comprised a Head plus 3 staff
members.
658. The 3rd round mutual evaluation established that criminal sanctions are not available in respect
of non-compliance with the AML/CFT requirements of the AML/CFT law. Administrative
sanctions were provided for in respect of both natural and legal persons. Sanctions could only be
imposed on the business entity itself (whether it is carried out by a legal person or a
self-employed natural person) which meant that managers and employees were not directly
sanctionable. The overall situation remains very similar to the situation established during the 3rd
round evaluation.
659. These criteria require countries to ensure that effective, proportionate and dissuasive criminal,
civil or administrative sanctions are available to deal with natural or legal persons covered by the
FATF Recommendations that fail to comply with national AML/CFT requirements.
660. The AML/CFT Law provides for administrative sanctions in the event of:
i.
ii.
iii.
iv.
v.
vi.
vii.
Violation of the obligation of confidentiality (Section 43);
Failure to comply with the requirement to perform identification and customer due
diligence (Section 44);
Failure to comply with the obligation to inform to the FAU all information on transactions
requiring identification or transactions investigated by the Ministry, together with
documentation and information on persons taking part in such transactions (Section 45);
Failure to comply with the obligation to suspend a transaction (Section 47);
Failure to comply with the obligation of prevention in respect of inter alia internal rules,
ensuring regular training to employees, entering into a corresponding bank relationship
against the provisions of the AML/CFT Law (Section 48);
Failure to comply with obligations relating to a transfer of funds (Section 49); and
Failure to comply with the obligation to declare during a cross-border transport of cash
(Section 50).
661. Administrative fines may be imposed on natural persons. All the other administrative penalties
can only be imposed on obliged entities. The FIU confirmed that the situation remained similar to
that of the 3rd round evaluations in that breaches by natural persons are sanctionable through the
internal disciplinary arrangements of the entity. The FIU contends that its counterparty for
AML/CFT purposes is the obliged legal entity and not the natural person. Thus, as also established
in the 3rd round evaluation, managers and employees remain not directly sanctionable.
662. The range of fines that are stipulated by the law are set out in the following table:
134
Table 22: administrative fines for Breach of AML/CFT Law
AML/CFT Law
Administrative fines
(up to)
If breach makes it more difficult to
identify or seize the proceeds of
crime, or make the financing of
terrorism possible (up to)
CZK
€*
CZK
€*
200,000
7,800
1,000,000
38,900
Sect. 44 CDD
1,000,000 to
10,000,000
38,900 to
389,000
50,000,000
1,946,000
Sect. 45 Failure to respond to
FIU request
10,000,000
389,000
50,000,000
1,946,000
Sect. 46 Failure to report STR
5,000,000
194,600
50,000,000
1,946,000
Sect. 47 Failure to suspend the
transaction
1,000,000
38,900
50,000,000
1,946,000
Sect. 48 Failure to comply with
other preventive obligations
(e.g. internal rules, training,
etc.)
1,000,000 to
5,000,000
38,900 to
194,600
50,000,000
1,946,000
Sect. 49 Failure to comply with
wire transfer regulation
10,000,000
389,000
50,000,000
1,946,000
Sect. 50 Cross border disclosure
10,000,000
389,000
50,000,000
1,946,000
Sect. 43 Violation of the
confidentiality
* rate of exchange €/CZK 25.695 (11 June 2010)
663. The evaluators consider that the administrative fines may not be persuasive enough; particularly
since a fine less than the maximum may be imposed and only upon legal entities (except for
Sections 43 and 50 of the AML/CFT Law).
664. Moreover, the evaluators were informed that no administrative fine has been imposed since
2008. The evaluators noted that for the equivalent period in the 3rd Round MER 54
administrative fines amounting to € 1,522,000 had been imposed. The CNB indicated that the
general policy is preventive. After onsite inspections, the CNB provides letters to the inspected
financial institutions requiring remedies for identified shortcomings as a first step, which
include a deadline for their fulfilment. The evaluators were told that the CNB can check
whether the necessary rectifications had been made through various offsite procedures and, as
necessary, follow-ups. The CNB advised the evaluators that in the relevant period of this
evaluation no proposals had been made by the inspecting teams to the CNB management for
administrative fines and therefore that no such proposals were made to the FIU.
665. In this context, it is also noted that Section 52 (1) AML/CFT Law states that:
a legal person shall not be liable for an administrative offence if it proves that it had
expended all reasonable effort to prevent the violation of the legal obligation.
666. According to information provided by the authorities, infringements were identified in 12 credit
institutions and life insurance companies and 3 within investment firms, investment companies,
investment funds and pension funds category from 1 January 2008 to 31 May 2010. The 12 and
3 institutions respectively may not necessarily be different institutions in which infringements
were identified. The table below shows the categorisation of the infringements.
135
Table 23: Categorisation of the infringements
Client Identification
-compliance of everyday practice with its description in
internal rules
- carrying out customer identification
Client Acceptability Rules/Policy (CAP)
-definition of conditions for not entering into a business
relation or terminating such relation
-compliance with CAP in practice
CDD + Know Your Customer Rules
-identifying of risk factors in the case of (i) new clients
and (ii) during a business relation with a client
risky country of origin of (i) the client, (ii) the
beneficial owner, (iii) the person with which the
client executes a transaction
client´s non-transparent ownership structure
origin of the client´s funds
-assessment of a client´s risk profile
Client´s Risk Categorisation
-discharging clients, risk categorisation in practice
-updating clients, risk categorisation
Availability and sharing of information about risk
clients among relevant employees
Definition of procedures to be applied in respect of risk
clients
-definition of more strict procedures
-compliance with these rules in practice
Checking against Sanction Lists
-all (i) clients, (ii) beneficial owners,(iii) persons with
which the client executes a transaction are subject of
checking
-up-dating Sanction Lists
Suspicious Transactions Record Keeping
-completeness of record keeping
-re-traceability (audit trail)
- compliance of everyday practice with its description in
internal rules
Software support of monitoring and suspicious
transaction detection
-all transactions of all clients are subject of this SW tool
-efficiency of scenarios & criteria of SW tool,
appropriateness of limits
-investigation of alerts
-re-traceability of investigations of alerts
18
Period covered is 1 July 2009 to 31 May 2010.
136
In banks, credit
unions and life
insurance
companies
In investment
firms,
investment
companies,
investment
funds and
pension funds
1
-
1
1
1
-
-
In
non-bank
foreign
exchange
entities18
74
-
11
4
2
1
2
-
5
3
-
-
2
-
-
4
4
-
-
4
5
-
-
1
1
-
-
1
-
1
-
-
2
2
2
-
-
Procedures from suspicious transaction detection till
suspicious transaction report
-re-traceability of procedures
-staff awareness of their duties in the STR reporting
process
Internal AML Rules
-compliance with AML legislation
-mutual compliance within internal rules
AML Training
-organisation of training
definition of job position of obliged persons for
AML training
fulfillment of all training requirements in practice
frequency of training
keeping records of training
-content of training
encompassment of concrete procedures according
to the AML internal rules
encompassment of concrete types of suspicious
transactions
In banks, credit
unions and life
insurance
companies
In investment
firms,
investment
companies,
investment
funds and
pension funds
In
non-bank
foreign
exchange
entities18
3
-
-
1
-
-
4
3
-
344
1
2
-
2
2
2
1
-
189
1
AML Assessment Report (AS)
-elaboration of the AS
- submission of AS to the statutory body
-compliance of AS content with the AML Decree
MLRO
-Control activities of MLRO (as a part of the ordinary
activity)
within the institution
-Appointment of MLRO
Internal audit activity in AML area
-all AML sub-areas are subject of internal audit
1
1
4
-
-
4
-
-
124
3
-
-
667. The relatively high administrative fines can be applied in the case of violations which
result in more serious cases which deter the identification or seizure of the proceeds of crime, or
make the financing of terrorism possible. There is no situation involving gross negligence or intent,
which remains non-sanctionable. In the event of a material, gross or repeated violation of the
obligations under the AML/CFT Law, under Section 36 the FIU can lodge a motion to terminate or
revoke a licence of an obliged entity.
668. The FIU like the CNB has, since the implementation of the 2008 Act, taken a preventive stance
so far as AML-CFT infringements are concerned and sought the rectification of mistakes rather
than imposing fines. As such they would consider fines and financial sanctions only in the event
that the obliged person does not correct the mistakes or deficiencies defined in letters of warnings
that result from the corresponding inspections. Because all obliged persons corrected mistakes and
deficiencies described in those warnings, no fines or sanctions have been imposed. In fact, the FIU
emphasises that the AML/CFT law is targeted more at prevention than sanctioning, and warnings
are framed more in the form of methodological advice. During the on-site interviews, the FIU
stated that the Supervisory Division, responsible for sanctioning, became fully operational only in
137
April 2010. Prior to that, there was only one person available to check internal rules and he was not
able to deal with the issue of sanctions following recommendations by the CNB. As noted above,
the CNB confirmed it had not made any recommendations for sanctions to the FIU.
669. The FIU is nonetheless able to impose financial sanctions. Under Section 36 of the AML/CFT
Law the Ministry (FIU) has the possibility of lodging a motion to terminate or revoke a licence for
business or other gainful activities to the authority which has the power to decide on revocation.
The evaluators understood this power did not apply to financial institutions such as banks,
brokerage companies, etc. but could be used for repeated violations of the AML/CFT Law by
individuals or legal persons not exempted by Section 37 (lawyers, notaries, etc.). The FIU has no
formal powers to issue instructions or warnings, though in practice the evaluators were advised that
they had done so. The range of sanctions does not appear to be extensive or proportionate enough,
as financial sanctions may not be the most appropriate sanction in all cases. Similarly there is no
possibility of criminal sanctions as yet.
670. The FIU informed at the time of the onsite visit that it had carried out off-site reviews only on
Systems of Internal Rules and issued a number of warnings for rectification as indicated in the
Table below. The FIU was not in a position to indicate the number of off-site reviews by sectors
but informed the evaluators that it carried out 206, 376, 316 and 81 reviews during 2007, 2008,
2009 and in the 1st quarter of 2010 respectively.
Table 24: Number of off-site inspections, identified violations and warnings by the FIU
2008
2009
N/A
N/A
N/A
N/A
19
23
82
4
19
23
82
4
N/A
N/A
N/A
N/A
13
3
28
0
13
N/A
3
N/A
28
N/A
0
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
6
2
1
0
6
2
1
0
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Number of AML/CFT
violations identified
N/A
N/A
N/A
N/A
Number of written warnings
N/A
N/A
N/A
N/A
Number of inspected Internal Rules
Banks
Number of AML/CFT
Cooperative saving
or credit unions
Electronic Money
Banks
Insurance companies
Investment firms
Securities issuers
2010
2007
Number of AML/CFT
Number of AML/CFT
Number of AML/CFT
Number of sanctions
(written warnings)
Number of AML/CFT
138
(05.10)
2010
2007
2008
2009
Number of AML/CFT
Number of AML/CFT
Number of AML/CFT
Number of AML/CFT
Number of AML/CFT
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Organisers of
investment
instrument markets
and other persons specified
Number of AML/CFT
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
in special legal rules
governing capital market
undertakings
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
41
16
125
48
41
16
125
48
7
38
72
4
1
42
Central depositories
Other entities
keeping a register of
investment
instruments
Investment
companies
Investment funds
Settlement system
operators
Others of which
-Providers or mediators of
payment services
-Leasing providers
-Non – banking subjects
Number of AML/CFT
- Providers or mediators of payment services
- Leasing providers
- Non – banking subjects
6
5
28
3
1
11
(05.10)
N/A: Not available
671. Section 44 of Act No. 6/1993 Coll. grants the CNB power to exercise supervision over financial
institutions and to impose remedial measures and penalties pursuant to this Act or a special legal
rule. The remedial actions included in Section 46 of the same Act specify that:
(1) Should the Czech National Bank detect any violation of this Act, another legal rule or a
provision issued by the Czech National Bank by an entity specified in Article 24(b), it shall
order the entity to abandon the incorrect procedure or terminate its operations.
(2) The entity referred to in paragraph 1 shall inform the Czech National Bank that the
shortcomings have been eliminated without undue delay after the elimination of the
shortcomings or immediately after the termination of its operations.
(3) The regulations on administrative proceedings shall not apply to the procedure referred to in
paragraph 1.
139
672. Act No. 21/1992 Coll. of 20 December 1991, on Banks empowers the CNB to take remedial
measures and impose penalties on banks in respect of prudential measures according to the nature
of the shortcoming. The CNB has a range of sanctions, which it can apply only for normal
supervisory/regulatory breaches, including to:
demand that the relevant bank remedies the situation within a specified period, or
rectify the shortcoming in its activities, by restricting some of its permitted activities,
ceasing non-permitted activities or other operations, replacing management or members of
the bank’s supervisory board, bringing the arrangements, strategies, processes and
mechanisms into compliance with the Act;
order an extraordinary audit at the expense of the bank or foreign bank branch concerned;
impose a fine of up to CZK 50,000,000.
673. In the case of serious shortcomings under Article 34 (1) of the Act on Banks, the CNB can also
revoke the bank’s licence “in the event of shortcomings in the activities which include failure to
comply with, or circumvention of, the Act on banks, special legislative acts and legal rules. The
shortcomings include failure to comply with, or circumvention of, this Act, special legislative acts,
legal rules and the provisions issued by the Czech National Bank. These sanctions can only be
made against the institutions concerned.
Table 25: AML/CFT Inspections by Czech National Bank
2007
2008
2009
2010
(05.10)
1
5
3
2
N/A
N/A
N/A
N/A
4
Nil
2
1
Number of AML/CFT violations identified
Number of AML/FT inspections
N/A
Nil
Nil
Nil
Nil
Nil
N/A
Nil
Nil
N/A
Nil
Nil
Nil
Nil
Nil
3
Nil
Nil
Nil
N/A
9
5
4
4
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Nil
Nil
Nil
Nil
Nil
N/A
N/A
N/A
Nil
Number of AML/CFT
3
1
1
1
Nil
Nil
Nil
Nil
4
Nil
4
Nil
N/A
2
Nil
2
Nil
N/A
3
Nil
1
Nil
N/A
Nil
Nil
Nil
Nil
Nil
Banks
Cooperative
saving or credit
unions
Electronic
Money Banks
Insurance
Companies
Investment firms
Securities issuers
Central
depositories
Other entities
keeping a
register of
investment
instruments
Investment
companies
Investment funds
Pension funds
Settlement
140
system operators
Organisers of
investment
instrument
markets and
other persons
specified in
special legal
rules governing
capital market
undertakings
2007
2008
2009
N/A
N/A
N/A
N/A
N/A
N/A
2010
(05.10)
Nil
Nil
N/A
N/A
N/A
Nil
N/A: Not available
674. The CNB became responsible for on-site inspections relating to AML/CFT issues for a wider
spectrum of obliged entities since the integration of the then independent supervisory authority in
2006 and further since the adoption of the AML/CFT Law. It is noted, however, that AML/CFT
specific inspections were low. However, the CNB informed the evaluators that it includes
AML/CFT inspections within the full on-site inspections. A number of the banks and insurance
companies verified that such inspections included within the full on-site inspections are thorough
and incorporate a wide spectrum of AML/CFT issues, as set out in the tables above.
675. It is only the FIU that can apply penalties/sanctions on obliged entities in respect of AML/CFT
failures. The CNB can impose sanctions in respect of normal prudential and supervisory failures,
including failure of internal control regulations. It, in fact, proposes corrective measures to the FIU
and verifies compliance with the corrective measures during a subsequent on-site inspection. The
CNB informed the evaluators that in 2009 it had issued one demand for such rectification to a bank
to remedy a situation within a specified period.
676. The interviewed institutions stated that AML/CFT inspections are carried out in conjunction with
full on-site inspections but consider that the relevant AML/CFT inspections are quite thorough.
The inspections in respect of interviewed banks were carried out between 2006 and 2008.
677. This is covered by Section 35 of AML/CFT Law.
Effectiveness and efficiency (R.17)
678. The sanctioning regime is only an administrative one – no criminal sanctioning is possible. The
administrative sanctioning regime is however not proportionate in terms of range of sanctions that
can be applied. The financial sanctions that can be applied can be quite low since a minimum is not
specified and the maximum, in turn, is low in some cases. In any event, the evaluators were
informed that no financial sanctions have been imposed. This raises serious questions about the
real effectiveness of the sanctioning regime. Moreover, there are no direct sanctions applicable to
directors, managers and employees which would encourage natural persons to be more thorough in
the conduct of their AML/CFT duties. This too limits the effectiveness of the sanctioning regime.
679. The FIU argued that the threat of sanctions is in itself a persuasive tool for obliged entities to
carry out their duties properly. However, as noted, no fines have been issued.
680. Regarding Recommendation 23.3.1, prior to issuing a licence, the CNB examines whether
persons having a “qualifying holding” (i.e. 10% or more, or which makes it possible to exercise a
141
significant influence over its management) in the bank are trustworthy and competent to exercise
shareholder rights in the bank’s business activities (see Article 4(5)(c) of the Act on Banks
6/1992). After the licence is granted, any (potential) shareholder needs the consent of the CNB to
obtain a ,qualifying holding, or to increase its holding over the thresholds of 20%, 30%, 50% or
obtain control (see Article 17a(3) of the Act on Banks 6/1992). Furthermore, prior to issuing a
licence the CNB examines whether the proposed managers are trustworthy, competent and
sufficiently experienced (see Article 4(5)(d) of the Act on Banks 6/1992). After the licence is
granted, the bank must inform the CNB in advance of any changes and provide the CNB with the
necessary documents to assess their trustworthiness, competence and experience (see Article
16(2)(b) of the Act on Banks 6/1992 Coll.). More details are given in paragraphs 693-695 of the 3rd
round MER.
681. Similar provisions, regarding Recommendation 23.3.1, are in place for: branches of foreign banks
(see Article 5(4) and Article 16(2)(b) of the Act on Banks 6/1992 Coll.); saving and credit unions
(see Article 2(a)(4) and 2(b) and Article 7(7) of the Act on Credit Unions 87/1995 Coll., insurance
or reinsurance company (see Article 13(6),19(2), 24(1),36(6),41(1) and 42(1) of the Act on
insurance 277/2009 Coll.); branches of foreign insurance or reinsurance companies (Act on
insurance 277/2009 Coll.; exchange bureaux (Foreign exchange Act 219/1995 Coll.); investment
companies or investment funds (Act on Collective Investments 189/2004 Coll.); investment firms
or foreign investment firms or investment intermediaries or tied agents (Act on Capital Market
Undertakings 256/2004 Coll.); payment institutions or electronic money institutions (Act on The
Payment 284/2009 Coll.) and others. The CNB emphasised that the "fit and proper" criteria for the
managers of insurance companies and brokers are rather new and did not exist at the time of the 3rd
round visit. These provisions apply to all new insurance undertakings that are created. The existing
insurance undertakings are under a primary duty to advise the regulator if there are significant
changes in respect of the “fitness and properness”.
682. Directors and senior management of financial institutions subject to Core Principles appear to be
evaluated on the basis of “fit and proper” criteria including those in the executive or supervisory
boards, councils, etc. of financial institutions. Though the previous MONEYVAL report
recommended more consistency in the application of the “fit and proper” criteria to this aspect of
market entry the inquires that are made still differ among the financial institutions subject to Core
Principles.
683. Undertakings of all of the regulated activities (banking, insurance, credit unions, etc.) are
regulated by special acts (Act no. 21/1992 Coll., the Banking Act; Act No. 277/2009 Coll., on
insurance; Act no. 87/1995 Coll., the Act on Credit Unions; etc.) In these acts, the supervisory
powers are specified in detail for each specific business activity.
684. Concerning criteria 23.5, 23.6 and 23.7, the CNB is the authority responsible for licensing and
supervision of all foreign exchange businesses and on money or value transfer services (the FIU
has supervisory responsibilities for AML/CFT purposes).
685. According to the legislation in effect until 31 August 2008 (Act No. 61/1996 Coll.), the CNB
supervised non-bank foreign exchange entities with FX licences (FX licence for selling of foreign
currency in cash, FX licence for providing of money services, FX licence for performing of noncash transactions) and also non-bank foreign exchange entities with a licence deed purchasing of
foreign currency in cash. This remains unchanged, except that the non-bank foreign exchange
entities with FX licence for selling of foreign currency in cash and the non-bank foreign exchange
entities with the licence deed for purchasing of foreign currency in cash have been transformed
into non-bank foreign exchange entities with the registration for foreign exchange business in cash
(purchasing and selling foreign currency in cash). The above-mentioned registration is also granted
142
by the CNB. Since 1 September 2008 (according to the Act No. 253/2008 Coll.) all kinds of nonbank foreign exchange entities have been supervised by the CNB.
686. From 2009 untill May 2010 the CNB carried out a total of 510 onsite examinations of non
banking foreign exchange bureaus. These examinations did not specifically target AML/CFT. The
evaluators were not given additional information on how many, if any, of these examinations
targeted AML/CFT issues.
687. As described in the 3rd round MER, all financial institutions, once licensed and authorised to
operate, are subject to the AML/CFT Law and to the relevant sector-specific regulations, as well as
to general supervision (criterion 23.1). The fact that the FIU has a parallel supervisory power
requires additional efforts in terms of coordination but it also prevents any loophole in the
supervision/control system. As noted in the comment on criterion 23.7 in particular, and as
mentioned also in the 3rd round MER, there is no lower risk-based approach applicable to the
financial sector on the basis of AML/CFT considerations.
688. The largest share of the banking sector in the Czech Republic is owned by foreign banks (France,
Germany, United States, etc.). Only one small bank is owned by Czech entities.
On-going supervision and monitoring
689. As mentioned in the 3rd round MER, banks, insurance businesses and collective investment
schemes and market intermediaries are normally subject to the Core Principles (criterion 23.4).
According to the Czech authorities their financial sector is increasingly familiar with issues such as
risk management processes. From the information gathered on site by the CNB, the evaluators
were advised that regulatory and supervisory measures applied for prudential purposes are also
used for AML/CFT purposes.
690. The CNB is the authority responsible for licensing and supervision of all foreign exchange
businesses and Money or value transfer services (the FIU have supervisory responsibilities for
AML/CFT purposes).
691. Regarding criterion 23.7 in particular, as mentioned in the 3rd round MER, there is no lower riskbased approach applicable to the financial sector on the basis of AML/CFT considerations.
692. The time CNB devoted to AML within on-site inspection ranges from days to 5 weeks (especially
for larger banks) according to the entity’s type, size, complexity, business etc. and the CNB
focuses on all areas of AML/CFT and includes interviews with responsible persons from
management and staff in headquarters and branches, and undertakes sampling etc.
693. The evaluators note that, in addition, the CNB carried out 15 on-site inspections in Banks, Saving
Building Societies, and Credit Unions during 2006. The reason for the decrease in the number of
inspections after 2006 (with approximately5 on-site inspections carried out in 2007, 2008 and
2009), was not clear to the evaluators.
Table 26: Banks, Saving Building Societies,
Insurance Companies and Credit Unions
Number of on-site
Year
inspections
2006
15
2007
5
2008
5
2009
5
05.2010
6
143
Non-bank foreign exchange entities
694. This category includes:
•
•
entrepreneurs offering cash purchases or sales of foreign currency
entities engaged in non-cash foreign exchange transactions or money services.
Table 27: On-site examinations
Year
Number of on-site
examinations
125
2006
118
2007
131
2008
362
2009
148
05.2010
695. Besides on-site AML supervision, off-site AML supervision focuses on compliance of internal
procedures with current legislation. 33 internal procedures were evaluated within off-site
supervision in 2009.
728. The overall supervision has mostly focused so far on largely formal requirements and to a limited
extent on the verification of the implementation of particular AML issues in practice, such as
analysing sample files and sample transactions. As shown in the Table on the type of
infringements identified during on-site inspections, 79 infringements were identified in credit
institutions and other banks and 7 in insurance companies etc between 2008 and May 2010.
These appear to be largely formal compliance infringements and none were deemed serious
enough by the authorities to warrant a financial sanction. Though there was some limited
evidence of in depth supervision in entities of the financial market, the general lack of more in
depth supervision may itself impact adversely on the quantity and quality of STRs. There was
limited, if any evidence of, attempts to identify STRs which had not been reported by the
obliged entities and CFT issues do not appear to have been identified in supervision.
696. During the period from 2008 to May/2010, it appeared that a low number of infringements were
identified in banks, credit unions and life insurance companies in the course of AMLCFT on-site
inspections. The number and types of infringement identified in investment firms, investment
companies, investment funds and pension funds, also appears to be very low (in only 1-2
institutions were infringements identified regarding client identification and suspicious transaction
report, and in only 2-5 institutions was lack of or inadequate AML training identified as an
infringement). Considering that, on average, there were about 350 financial institutions in the
Czech Republic, the infringements found are indeed very low.
697. In the securities market, AML/CFT inspections have been carried out in the last three years as
part of the overall inspections.
698. It appears that the financial sector’s awareness on CFT issues and the depth to which they check
TF lists is insufficiently addressed, particularly in supervision.
699. According to the FIU representatives, this is because the Czech Republic has no experience of
terrorist threats. In this context it is important to note that combating the financing of terrorism,
like combating ML, is an international requirement because terrorists may seek the weakest links
in the chain to finance their acts. The examiners noted that such acts can occur in any EU country.
144
Guidelines
700. All financial Institutions and the DNFBP informed the evaluators that the FAU "works closely"
with the obligated entities. They confirmed that the FIU provides clarifications, opinions etc. on
issues related to the prohibition on money laundering through various means including verbal
advice, letters, E-mail, etc. In fact, the FIU noted that a large part of their time is devoted to
answering queries from various obligated entities. As part of the cooperation with financial
institutions and professional associations, the FIU personnel provide training to professional bodies
as well as delivering presentations during conferences/seminars organised by the professional
bodies.
701. The FAU also provides on its website, information/explanations relating to identification issues,
credit cards, PEPs, CDD, reporting obligations, suspension of a transaction, confidentiality, third
country equivalence, exemptions, etc. The website also contains forms, templates, relevant
legislation (both Czech and European), and some MONEYVAL/FATF documents. However, this
information does not appear to be considered as guidance by almost of the financial institutions
and DNFBP to assist them in the practical implementation of and compliance with AML/CFT
requirements. Indeed, a number of institutions stated that they would appreciate specific guidance
on a number of issues, as described throughout this report.
702. Some supervisory bodies of DNFBP (lawyers, tax advisers, auditors and real estate agents) have
also issued guidelines. The evaluators were also informed that some of the professional entities
consulted the FIU personnel and involved them in the formulation of the guidelines.
Representatives of the professional bodies noted that they have not issued any specific guidelines
relating to the financing of terrorism.
Effectiveness and efficiency (R.25)
703. The FIU works closely with the obligated entities especially with their associations and chambers
in performing training activities and publication of guidelines on various subjects, also on its
website. The CNB has issued one general guidance on AML/CFT which largely relates to the
implementation of the AML/CFT law. The professional associations and chambers of DNFBP
have issued similar guidelines. Neither the CNB, nor the FIU have regularly published guidelines
which go beyond the implementation of the AML/CFT Law to cover more general descriptions of
ML and FT methods, or provided any guidance on additional measures to ensure that the
AML/CFT measures are effective. In this context, the private sector indicated to the evaluators that
they had little specific guidance relating to the financing of terrorism. It was noted by the
evaluators that Czech authorities considered that the experience of FT was extremely limited.
704. Though the institutions with which the evaluators met indicated that they would welcome more
feedback, the FIU pointed out that since September 2008 all reporting entities have been receiving
case specific feedback in relation to each STR. They receive the feedback when the case is
finalised by them (either passed to the law enforcement authorities or no further action is taken but
the STR remains in the FIU database). Once the case has been passed to law enforcement there
appears to be no system in place for routinely advising entities which made STRs of significant
developments in the handling of cases passed to law enforcement and prosecutors.
3.8.2
Recommendation 23
705. It appeared to the evaluators that a very light touch risk based supervision approach is taken
overall to AML/CFT. The CNB should carry out more AML/CFT targeted on-site inspections.The
145
CNB need to establish a clearly articulated and realistic risk based approach to the frequency of the
inspections, which the examiners judged to be quite insufficient. It is critical for the CNB to
determine a cycle of on site inspections which catch all financial obliged entities at some point
(with especial attention to the banks which hold most of the financial sector assets).
706. The CNB should carry out more targeted AML/CFT inspections in the non-banking financial
sector, particular foreign exchange bureaus.
707. The evaluators recommend the Czech authorities to strengthen the FIU resources, particularly
manpower, to enable it to strengthen its oversight and supervisory work, with power to step in and
conduct on-site inspections if another supervisor fails to perform, or inadequately performs its
supervisory functions in respect of AML/CFT provisions.
708. It is necessary to ensure targeted CFT controls take place in future in all the financial sectors.
This includes raising awareness of CFT issues and ensuring more training in the financial sector
CFT issues, including detection of FT related assets and awareness of international lists.
709. It is necessary to issue further guidance documents on both AML and CFT issues, including to
financial supervisory staff.
Recommandation 17
710. It is necessary to introduce direct sanctions for directors, managers and employees.
711. It is necessary to provide for a wider range of sanctions (such as warnings, orders to comply with
instructions, special reporting, removal or restriction of powers of directors, managers and officers
or restrictions of business activities).
712. It is necessary to introduce sanctions in respect of breaches for failure in carrying out properly the
identification process.
713. It is necessary to review the administrative fines to introduce a minimum amount which is in
itself dissuasive.
714. The guides of the professional bodies, the FIU and of the CNB include explanations of the
requirements of the Prohibition on Money Laundering Law (Act No. 253/2008), but in most cases
they do not include a description of ML and FT techniques and methods or any additional steps
that the obligated entities could take to ensure that their AML/CFT measures are effective, as
required pursuant to the criterion under Recommendation 25.1.
715. While appreciating the feedback given now by the FIU in relation to each STR, consideration
should still be given to the feasibility of more routine case specific feedback (particularly in
relation to significant developments in the case) to reporting entities once the FIU has passed a
case to law enforcement.
146
Recommendation 29
716. The new AML/CFT law, like the previous ones, as mentioned in the 3rd round evaluation report,
sets clear authority for supervising the financial and other entities, which was very much welcomed
by the examiners.
717. The supervisors authority bodies seem to take their AML duties seriously and they have broadly
adequate powers to do so in respect of legal entities although, as clearly noted above, more efforts
need to be made in intensifying supervision and speeding up the supervisory cycle. The evaluators
remain concerned that few targeted inspections were carried out.
718. The evaluators concluded that enforcement and sanctioning powers need to be granted in respect
of directors and senior managers. It should be clarified that there is a power to sanction for refusal
to disclose information to a supervisor.
719. More resources dedicated to AML/CFT compliance issues should be allocated by the Czech
National Bank.
Recommendation 32
720. The CNB and the FAU should maintain updated, timely and comprehensive statistics, including
those relating to AML/CFT on-site and off-site examinations as well as more detail in relation to
violations and shortcomings identified during these inspections. This will assist the authorities,
amongst others, to be in a position to implement an effective risk-based approach in respect of the
AMLCFT regime.
3.8.3
Compliance with Recommendations 23, 29, 17, 30, 32 & 25(25.1)
Summary of factors relevant to s.3.10. underlying overall
rating
Rating
R.17
PC
•
•
•
R.23
PC
•
•
•
•
•
Administrative sanctions included within the AML/CFT Law
are not proportionate and not necessarily dissuasive as the
maximum financial sanctions that can be applied are quite
low;
Except for violation of the obligation of confidentiality, on
which administrative fines may be imposed on natural persons,
all the other administrative penalties can only be imposed on
legal obliged entities. Directors, managers and employees are
not directly sanctionable;
No financial sanctions have been applied (effectiveness issue).
Low number of annual inspections in relation to AML/CFT
especially in the banking sector;
No clarity as to whether there is a cycle of inspections which
catches all financial obliged entities at some point;
A very light touch risk-based supervisory approach is taken
overall in respect of AML/CFT;
The numbers of obliged entities where infringements
identified as a result of on site inspection appears to be low;
CFT issues insufficiently addressed in supervision.
147
Summary of factors relevant to s.3.10. underlying overall
rating
Rating
R.25
(25.1)
PC
•
•
•
R.29
LC
•
•
Insufficient guidelines on AML and CFT techniques and
methods;
Not enough case specific feedback;
Insufficient sector specific guidelines
No adequate powers of enforcement and sanctions against
directors or senior managers of financial institutions for failure
to comply to or implement AML/CFT requirements;
Unclear whether there is a power to sanction for refusal to
disclose information to a supervisor.
R.30
PC
•
•
Inadequate resources for FIU supervision and monitoring.
CNB AML/CFT resources are low for supervision.
R.32
PC
•
Difficulties in providing updated statistics suggest they are not
available in a timely manner.
3.9
Money or value transfer services (SR.VI)
3.9.1
Special Recommendation VI (rated PC in the 3rd round MER)
721. Money or value transfer services are obliged entities under the AML/CFT law (Section 2 (1) b)
11). Thus, it can be concluded that all the provisions in the AML/CFT law apply to them.
722. Money or value transfer (MVT) services providers have to be licensed. The Czech National Bank
is the body that is responsible for deciding on requests for licences (fit and proper checks are
applicable to them), under Section 44 of Act No. 6/1993 Coll. Any other alternative money
services are considered as unauthorised businesses according to Section 251 of the Criminal Code
(one of the crimes against binding rules of the market economy), and this is an administrative
offence according to the Payment Services Act. The CNB representatives told the evaluators that
the police need to know about cases in order that legal action is taken against non-licensed
operators. The CNB were not aware of any such cases.
723. Both the CNB and the FIU have supervisory responsibilities for the money or value transfer
services providers. The reply to the questionnaire indicated that the CNB carries out on-site
inspections and has to pay attention also to compliance with AML/CFT obligations and to monitor
internal procedures. An integral part of this supervision also involves checking the integrity of the
money remitter himself (whether he is taking part in ML/TF activity). Therefore, it supplements
its work by co-operating with the FIU.
724. The CNB representatives told the evaluators that they have a list of the licensed MVT services
operators and their agents which provides an overview of the types and number of operators
involved. The reply to the questionnaire includes a link to the CNB list of entities (as set out by the
Payment Services Act Section 136). Since the MVT services operators are obliged entities under
the AML/CFT law, they are subject to the sanctions under Sections 43 - 48 of the AML/CFT Law
148
for violations of AML/CFT obligations, e.g. CDD, information or reporting obligations, and
suspension of transaction or keeping of systems of internal procedures. Whenever any of these
obligations are not complied with, sanctions can be imposed on the MVT services operators. Czech
authorities indicated that in addition to administrative sanctions, there are also criminal sanctions
(as in Section 216 and 217 of Criminal Code (Act. 40/2009 Coll.)). The FIU can also forward a
motion to withdraw a licence whenever the obliged entities violate seriously or repeatedly the
AML/CFT obligations. This has never happened.
725. In the 3rd round report, it was advised that the Czech authorities may also wish to consider
placing the licensing and supervision of the financial services offered by the Czech Post under the
competence of the Czech National Bank for the sake of consistency" and that "the alleged informal
remittance activities need to be looked at." The situation has nonetheless remained unchanged.
726. The Czech National Bank is the body that is responsible for deciding on requests for licences.
727. Both the CNB and the FAU have supervisory responsibilities on the money or value transfer
services providers.
728. The Czech Authorities indicated that the measures set out in the Best Practices Paper for SR.VI
had broadly been implemented.
729. The system for regulating money or value service transactions appears on paper to be operating
satisfactorily. But it is unclear how many controls have been performed in respect of these bodies
and whether any AML/CFT breaches have been detected. It is also unclear whether the country is
fully aware of remitters acting outside the financial system.
730. The bank representatives told the team that they do not give transfer money services to occasional
clients.
3.9.2
731. All of the operators of the MVT sector are licensed and supervised (directly or indirectly) by the
CNB, which monitors the implementation of the national requirements to combat money
laundering and terrorist financing and the FATF Recommendations. Nonetheless it was not clear to
the evaluators whether the potential risks in this sector had been thoroughly analysed and/or the
degree of oversight that is given to this area by the authorities. Information provided on alleged
informal remittance services was insufficient for the evaluators to form a view of the situation.
3.9.3
Compliance with Special Recommendations VI
Rating
SR.VI
PC
Summary of factors relevant
• Effective implementation of SR.VI not demonstrated;
• Alleged informal remittance activities not fully assessed.
149
4.
4.1
PREVENTIVE MEASURES – DESIGNATED
BUSINESSES AND PROFESSIONS
NON
FINANCIAL
Customer due diligence and record-keeping (R.12)
(Applying R.5 to R.11)
4.1.1
732. DNFBP categories under the AML/CFT Law include holders of a licence to operate betting
games in casinos, legal or natural persons authorised to act as real estate traders or brokers,
auditors, tax advisors, chartered accountants, licensed executors, lawyers or public notaries,
entrepreneurs or legal persons which are not a business, who receive payments in cash in an
amount of €15,000 or more, persons not included in the list above who provide most of the
services associated with trust and company service providers under Article (e) of the FATF
Methodology 12.1 to another person, persons licensed to trade in items of cultural heritage, items
of cultural value, or to act as intermediaries in such services; persons licensed to trade in used
goods, act as intermediaries in such trading, or receive used goods in pawn and other activities and
persons as defined in Section 2 of the AML/CFT Law.
733. As noted above, the AML/CFT law explicitly applies to all of the designated non-financial
businesses and professions, which are defined by the FATF Glossary, with the exception of dealers
in precious metals and dealers in precious stones when they engage in any cash transaction with a
customer equal to or above the applicable designated threshold. The formulation under Section 2
(obliged entities) covers in paragraph (2)(d) entrepreneurs not listed in paragraph (1), should they
receive payments in cash in an amount of or exceeding € 15,000. Given that the FATF
Recommendations focus on those DNFBP which are considered particularly vulnerable, and the
observations at paragraph 13 of the 3rd MER, it is regrettable that they are not specifically covered
under Section 2 of the Act (with the consequential effect that this has for monitoring of this
important sector – see R.24).
734. It is concluded that the provisions that apply to DNFBP basically mirror those that apply for
financial institutions, and the law prohibiting cash transactions above € 15,000 is said to provide an
additional safeguard. Special provisions are also stipulated in Section 26-27 of the AML/CFT law,
relating to professionals and exempting them from obligations where legal professional privilege
applies.
735. Though the legislative base seems to be sufficient in terms of preventing money laundering and
terrorist financing through DNFBP, the interviews with the representatives of DNFBP disclosed a
lack of practical knowledge across the sector of some CDD procedures (as well as the procedures
in place for PEPs and CFT listed persons) and online monitoring of customer activities.
736. General CDD obligations for the categories of DNFBP covered by the AML/CFT Law have the
same strengths and weaknesses as described in section 3.2. In this respect, as per financial
institutions, customer due diligence does not include the monitoring of the account activity to
determine those transactions that do not conform with the normal or expected transactions for that
customer or type of account. Furthermore, in respect of enhanced customer due diligence, there are
no requirements for additional processes to mitigate risks, including certification of documents
presented and no additional enhanced customer due diligence requirements (e.g. certification of
documents presented and additional documentation, approval process etc). It appears also that not
150
all DNFPB have generally being monitoring to ensure their customers are not included in the
international lists of terrorists.
737. The representatives of casinos explained that in practice all the clients are identified at the
entrance to the casino by identity card or passport. A special computer programme for record
keeping is used, which records information such as: name, date of birth, gender, place and country
of residence, address or the type and number of identity document and photograph of the player.
Whenever clients change money they must identify themselves again, and their identity is verified
by means of the picture.
738. From explanations received from casino representatives it could be understood that other CDD
procedures, such as on-going due diligence, “know-your-customer” principles, verifying the
identification via external sources, a requiring beneficial owner statement and establishing the
beneficial owner’s identity, are not carried out at the casinos, except in cases where the
transaction/client is suspected of being involved in ML (in such cases the casinos also sends an
STR to the FIU).
739. In the course of the meeting with representatives of the real estate agencies the evaluators were
advised that they identified their clients, individuals as well as companies, and that they keep
copies of ID cards or passports. Furthermore, in addition to the AML/CFT Law requirements they
also comply with the directives of their professional Chamber, which provides them with a list of
terrorist organisations, and they check whether their clients appear on that list.
740. As aforesaid, an entrepreneur or a legal person who is not a business, who receives payments in
cash in an amount of €15,000 or more is one of the obliged entities and this applies to relevant
dealers in precious metals and precious stones. According to section 54(4) a payment in
commodities of high value, especially precious metals or precious stones, shall be regarded as a
payment in cash.
741. Lawyers and notaries are obliged entities of the AML/CFT Law when they offer the service of
safekeeping money, securities, or customers’ other valuables, or when required by customers to
represent them or to act on their behalf in the following situations: buying or selling real estate or a
business entity or part thereof; managing customers’ assets, such as money, securities, business
shares, or any other assets, including representing customers or acting on their behalf in relation to
opening accounts in banks or other financial institutions or establishing and managing securities
accounts; or establishing, managing, or controlling a company, business group, or any other similar
entrepreneurial entity regardless of its status as a natural/legal person, as well as receiving money
or other valuables for the purpose of establishing, managing, or controlling such entity; or
providing services of encashment, payments, transfers, deposits, or withdrawals in wire or cash
transactions, or any other conduct aimed at or directly triggering movement of money. In addition,
a public notary is an obliged entity when he provides notarised safekeeping services (Section 2
Article 1(g)).
742. Section 27(1) of the AML/CFT Law limits the requirements of lawyers to perform CDD if the
information pertaining to the customer is obtained from the customer or in any other way during or
in connection with: a) providing legal advice or the later determination of the customer’s legal
standing, b) defending the customer in criminal law proceedings, c) representing the customer in
court proceedings, or d) providing any legal advice concerning the proceedings referred to in
points b) and c), regardless of whether the proceedings had commenced or not, or were concluded
or not.
743. Section 27(2) of the AML/CFT Law limits the requirements of a lawyer and a notary to perform
CDD if the information pertaining to the customer is obtained from the customer or in any other
151
way during or in connection with: a) providing legal advice or the later determination of the
customer’s legal standing, b) representing the customer in court proceedings subject to the mandate
conferred on the public notary by law or any other legal norm, or c) providing any legal advice
relating to the proceedings referred to in point b), regardless of whether the proceedings had
commenced or not, or concluded or not.
744. The representatives of the lawyers explained that in practice:
They operate in accordance with the AML/CFT Law –– they request identification
documents and keep basic information on customers. When they manage funds/money they
do so via a bank account and they are required to provide additional information.
The essence of agreements with clients and the service they provide obliges them, with
regard to the issue of ML as well as for internal requirements, to clarify whether the service
is being provided for the client or for someone else (beneficial owners). They also advised
that when money is transferred from abroad they sometimes request a beneficial owner
declaration, which they consider to be sufficiently reliable, without further enquiry.
When a client brings money they clarify its source, and note those details in their agreement
with the client. In some cases they refuse to accept the money. There are also instances when
they refuse to deal with a client because of lack of information.
From the discussions it appears that they consider that there is no effective way of
discovering who are the private shareholders who control corporations.
745. The representatives of the notaries explained that in practice:
The risk of ML is very limited with regard to the services they provide and the internal
procedures they operate. Most cases consist of depositing money which serves as collateral
in a purchase transaction.
They ascertain the source of the money and whether it has been transferred from the client’s
account. If it has not come from the client’s account, they ask for further clarification.
746. Regarding trust and company service providers the AML/CFT Law applies when they provide
the following professional services to another person (Article 1(h) and 1(i), Section 2):
establishing legal persons;
acting as a statutory body or its member, or acting as person appointed to act in the name of
or on behalf of a legal person, or another person in a similar position, should such service be
only temporary and should it be related to establishing and administration of a legal person;
providing a business location, address, and possibly other related services to another legal
person;
acting as an appointed shareholder on behalf of another person in case this person is not
acting as a company whose securities have been accepted for trading at a regulated market
and which is subject to information disclosure requirements equivalent to those laid down by
the European Communities law; or
acting in their name of or on their behalf in activities mention in article 12 here, for lawyers
and notaries.
747. According to the information provided by the Czech authorities, it appears that trust and company
services are provided by lawyers only.
748. The representatives of the accountants explained that in practice they do not have their own
internal rules for identifying a new client, but the Chamber is a member in several international
organisations (such as the IFAC), and members of the Chamber, under the oversight of the
Chamber, comply with the international rules.
152
749. The representatives of the tax advisors explained that in practice the Chamber expects them to
implement the KYC procedure by means of a structured questionnaire (based on an ID format). In
addition to the basic questions there is reference to private shareholders controlling the company.
In certain cases they also request a beneficial owner’s declaration. They added, however, that there
was no obligation to follow this procedure.
750. The AML/CFT law applies to DNFBP in the same way as it does to financial institutions, and the
concept of PEPs is applicable across the sector, and the same strengths and weaknesses are present
(see section 3.2). In particular, Article 2 in Section 15 states that the obliged entity shall refuse a
transaction for a PEP if the origin of assets used in the transaction is unknown and Article 3 in
Section 15 states that no employee of the obliged entity shall make a transaction for a PEP without
consent of their direct supervisor or the statutory body of such an obliged entity.
751. The discussions with the representatives of different DNFBP categories lead to the conclusion
that in practice there is a greater lack of awareness of this issue amongst DNFBP than in the
financial sector: several interviewees told the evaluation team that it is not possible for them to
identify whether a person is or is not a PEP (notably the casinos and the lawyers and notaries).
The tax advisor representatives noted that they have a question regarding PEPs in their client
questionnaire (see article 353 above).
752. The situation as described above for financial institutions (see section 3.2 above) applies equally
to DNFBP.
753. Concerning non face-to-face business, the casino representative advised that the casinos do not
offer gambling via the internet.
754. The AML/CFT law permits reliance on qualified third parties for the performance of CDD, under
certain conditions. This is applicable to financial institutions and DNFBP.
755. Article 2 in the Czech Bar Association guideline notes that the lawyer is not obliged to carry out
the client’s identification if the identification has been carried out by another obliged person and
the lawyer has assumed this identification (Section 11(1) to (3) of the AML/CFT Law), or the
client’s identification has been carried out by a public notary in accordance to Section 10 of the
AML/CFT law.
756. In general, the same situation as described above concerning financial institutions applies also for
DNFBP with regard to their record keeping obligations (see section 3.4).
757. In casinos documentation of all transactions of more than € 10,000 are kept for ten years.
758. The legal coverage of DNFBP is comprehensive and in line with international standards. It
comprises inter alia casinos; auditing firms and independent auditors; accounting and tax advisers,
dealers in real estate; notaries, attorneys and other legal services. Additionally the Czech Republic
has added other categories (which are not required by international norms) to the obliged entities:
e.g. dealers in cultural value.
759. DNFPB appear to be aware of and to apply the customer identity AML/CFT rules in practice.
There was, however, a general lack of awareness of other CDD procedures. This was particularly
the case with regard to the PEPs.
153
760. Discussions with the representatives of DNFBP disclosed a lack of guidance and practical
knowledge across the sector. This was particularly the case with the TF lists
761. The weaknesses with regard to Recommendations 5, 6, 8, and 10 which were apparent in the
financial sector also apply for DNFBP.
4.1.2
762. As the AML/CFT law applies to DNFBP in the same way as to financial institutions the same
weaknesses are present with regard to Recommendations 5, 6, 8 and 10 (see section 3.2 and 3.4
above). There remained a general lack of awareness among representatives of DNFBP whom the
evaluators met of some important preventative obligations, and it is recommended that specific
guidance is produced for each sector as well as undertaking further outreach and training in order
to raise awareness.
4.1.3
Summary of factors relevant to s.4.1
underlying overall rating
Rating
R.12
4.2
PC
• The same concerns about the implementation of Recommendations 5, 6, 8
and 10 apply equally to DNFBP;
• Lower level of awareness of requirements relating to PEPs and CFT
amongst DNFBP than in the financial sector.
Suspicious transaction reporting (R.16)
(Applying R.13 to 15 and 21)
4.2.1
763. The table beneath shows the DNFBP categories covered by the list of obliged entities
(i.e. reporting entities) by the AML/CFT Law.
Table 28: DNFBP categories covered by the list of obliged entities
DNFBP categories
by FATF Methodology
Obliged entities under AML/CFT Law
a) Casinos (which also
includes internet casinos).
Holders of a licence to operate betting games in casinos in compliance with
the Act on lotteries and other similar games. (section 2.1.c of Act 253/2008
as amended).
Internet Casinos are not covered explicitly by the AML/CFT Law. However
the Czech authorities indicated that these activities are prohibited by
exclusion by the Lottery Act. In addition unlawful Operation of a Lottery or
Similar Betting Game are punished by Section 252 CC.
b) Real estate agents.
Legal or natural person authorised to act as a real estate trader or broker.
(section 2.1.d of Act 253/2008 as amended)
c) Dealers in precious
metals.
Not per se covered by the AML/CFT Law
d) Dealers in precious
stones.
Not per se covered by the AML/CFT Law
154
DNFBP categories
by FATF Methodology
Obliged entities under AML/CFT Law
e) Lawyers, notaries, other
independent legal
professionals and
accountants
Lawyer, public notary, auditor, tax advisor, chartered accountant, a licensed
executor performing other activities of an executor pursuant to the
Executor´s rules of procedure (sections 2.1.e, 2.1.f and 2.1.g of Act
253/2008 as amended)
f) Trust and Company
Service Providers
Person providing services in a framework of a trust or any other similar
contractual relationship under foreign law (sections 2.1.i of Act 253/2008 as
amended)
764. The AML/CFT Law extends the list of the obliged entities to persons that:
a) provide professional services in the cases indicated in Section 2.1.h;
b) are licensed to trade items of cultural heritage or of cultural value as set forth in Section 2.1.j;
are licensed to trade in used goods, act as intermediary in such trading, or receive used goods
in pawn (Section 2.1.k).
765. There are some additional persons considered as obliged entities under Section 2.2 of the Act.
766. As regards dealers in precious metals and stones, there are not explicitly covered per se by the
AML/CFT obligations but are required to perform specifics AML/CFT requirements set out in
Section 28 in the AML/CFT Law when they perform transactions exceeding 15.000 Euros or
equivalent in other currencies.
767. Internet casinos activities are not permitted under the Lotteries Act according to the information
provided by the Czech authorities, who indicated that in case of unlawful operations criminal
sanctions apply (namely Section 252 of the CC).
768. According to Section 18 the obliged entities shall report suspicious transactions to the Ministry
(i.e. FAU). However, Section 26 and 27 of the AML/CFT Law establish some exceptions to the
general requirement for professionals (lawyers, public notaries, auditors, chartered accountants,
licensed executors and tax advisors) which may impact upon the effectiveness of the
implementation of this requirement.
769. Section 2 letters c) to k) of the AML/CFT Law fully cover all natural and legal persons defined as
DNFBP by the FATF. DNFBP are under the obligation to report suspicious transactions to the
Ministry (i.e. FAU) (Section 18 of the AML/CFT Law).
770. The notion of “suspicious transaction” is defined in Section 6 of the AML/CFT Law as “the
circumstances of which lead to a suspicion of legitimisation of proceeds of crime or financing of
terrorism or any other unlawful activity”. The definition is broadly adequate but the provision
applies to transactions which are not connected with the usual activities of DNFBP (for example
“cash deposits immediately followed by withdrawals or transfers to other accounts”). The wording
of this provision may affect the level and quality of STRs sent by DNFBP.
771. Furthermore, according to Sections 26 and 27 of the AML/CFT Law, auditors, accountants and
other advisors, lawyers and public notaries, report to the Ministry (FAU) through their respective
Chambers and the latter “examine” the STRs i.e. verify that all the information required is included
and is consistent with the provisions on the “legal privilege” of the given profession and with
Section 18 paragraph 1 of the Act.
772. However, according to the representatives of the Chambers met on-site, there were cases when
STRs were sent back to the reporting professional as the issue was not considered to be related to
155
money laundering. Therefore, it appears that, although the Chambers are required by law only
to look into the accuracy of the reported cases (i.e. “how the case is reported”), the representatives
indicated that they were also looking into the substance of the cases reported (i.e. “what is
reported”). Therefore it appears that the Chambers exceed their power to verify the information
contained in the STRs.
773. All other DNFBP (casinos, real estate agents, and Trust and Company Service Providers) report
directly to the FAU as prescribed by Section 18 of the AML/CFT Law.
774. According to the figures provided by the authorities, in 2008 there were no STRs filed by
DNFBP with the FAU. In 2009 3 STRs were reported and 1 STR in the first quarter of 2010 was
filed. Casinos and betting games establishments in 2008 reported 5 cases, none in 2009 and made
3 disclosures in the first quarter of 2010. STRs from DNFBP constitute approximately 0.22%,
0.13% and 1.02% of the total number of STRs filed with the FAU. These figures appear to be very
low.
Table 29: STRs from DNFBP
DNFBP categories
Professionals
Casinos and betting games
Dealers in precious high-value items
Real estate agents
Total STRs from DNFBP
Total STRs from all obliged entities
Percentage of STRs from DNFBP
2008
2009
IQ2010
0
3
1
5
0
0
5
2.320
0.22%
0
0
0
3
2.224
0.13%
3
0
0
4
391
1.02%
775. The above-mentioned figures seem to indicate that the DNFBP have difficulties to assess
properly the reporting requirements and detect suspicious transactions which may be due to:
• the lack of guidance interpreting the notion of “suspicious transaction” as such (e.g. the “listed
transactions” could affect the disclosure regime);
• the lack of training for DNFBP in this respect;
• or, the role of the Chambers when assessing whether a STR is to be further reported or not.
776. The FAU has not issued specific guidance on reporting for DNFBP, which influences the
effectiveness of the reporting regime. According to the representatives of DNFBP and the
authorities there is no formal consultation mechanism (such as written agreement or committee) on
this matter.
777. The representatives of the Association of Casinos informed the evaluators that some indicators of
“suspicious behaviour” of customers and some operations related to currency exchanges were
produced to help the staff of casinos detect suspicious transactions.
778. The representatives of the real estate agents indicated that their associations have drafted
guidelines on suspicious transactions, which were still to be approved by the FAU.
779. Lawyers, public notaries, auditors, chartered accountants, licensed executors and tax advisors are
subject to special reporting provisions and according to Sections 26 and 27, DNFBP are obliged
to send STRs to the following authorities:
a) auditors - to the Chamber of Auditors of the Czech Republic;
b) licensed executors (judicial executors who can under certain circumstances carry out
depositing or administrating of the clients, assets) - to the Chamber of Licensed Executors of
the Czech Republic;
156
c) tax advisors - to the Chamber of Tax Advisors of the Czech Republic;
d) lawyers - to the Czech Bar association;
e) public notaries - to the Chamber of Notaries of the Czech Republic.
780. The Chambers check whether the filing of the STR leads to a conflict with the provisions on
“legal privilege” and, in respect of Section 18, whether the STR contains all the elements required
by the AML/CFT Law. In cases of inconsistency the Chamber may send the STR back to the
reporting professional. If the STR is in compliance with the above-mentioned requirements the
Chamber has to refer it to the FAU.
781. The STRs shall be sent to the FAU by the Chambers without undue delay but no later than 7 days
from their reception (S.27 (3)). This time-limit of 7 days implies the existence of a permanent body
to deal with STRs but the representatives of the Chambers did not mention any developments in
this respect. It was not possible to establish during the visit how the Chambers examine STRs from
their members.
Table 30: STRs received by the Chambers and sent to the FAU
2008
0
0
0
2009
1
0
1
IQ 2010
1
0
0
STRs received by Czech Bar Association for Lawyers
0
0
0
STRs received by Chamber of Notaries
0
1
0
Total STRs received by the Chambers
0
3
1
STRs sent to the FAU by Chambers
0
3
1
STRs received by Chamber of Auditors
STRs received by Chamber of Licensed Executors
STRs received by Chamber of Tax Advisors
782. Under R 16 criterion 2, professionals are allowed to send STRs to their self-regulatory
organisations (SROs) but an appropriate form of co-operation between SROs and FIU should be
established. As mentioned above, there is no formal mechanism between FAU and DNFBP (in
particular professionals) or their representatives for consultations in this respect.
Professional privilege
783. Articles 26 and 27 of the AML/CFT Law contain provisions on “professional privilege”.
784. Auditors, accountants and others professionals indicated in Section 26 shall not report cases
where “the information obtained from or about the customer during the process of establishing of
the customer’s legal standing, during the representation of the customer in court, or in connection
with court proceedings, including the giving of advice to instigate or avoid such proceedings,
regardless of whether the information was obtained prior to, during or after the proceedings”.
Such provision shall not apply if “the auditor, chartered accountant, licensed executor or tax
advisor suspects that the customer is seeking counsel for the purpose of legitimisation of proceeds
of crime or the financing of terrorism”.
785. As regards lawyers the legal privilege is set out in Section 27, paragraph 1 of the AML/CFT Law
according to which a lawyer shall not report STRs where the information pertaining to the
customer is obtained from the customer or in any other way “during or in connection with:
providing legal advice or the later determination of the customer’s legal standing; defending the
customer in criminal law proceedings; representing the customer in court proceedings, or
providing any legal advice concerning the proceedings referred to in points b) and c), regardless
of whether the proceedings had commenced or not, or concluded or not.”
157
786. Public notaries are not required to report STRs on information pertaining to the customer
regardless of whether it was obtained from the customer or in any other way during or in
connection with: providing legal advice or in the later determination of the customer’s legal
standing; representing the customer in court proceedings subject to the mandate conferred on the
public notary by law or any other legal norm; or providing any legal advice relating to the
proceedings referred to above, regardless of whether the proceedings had commenced or not, or
concluded or not (cf. Section 27, paragraph 2).
787. Hence, legal privilege is applicable not only in the case of the reporting obligation, as stipulated
above, but also in cases when information is requested by the FAU (Section 24 of the AML/CFT
Law). There is no FATF standard in this respect but Recommendation 4 requires a country to
refrain from adopting measures that could prevent the authorities accessing the information
indispensible to the proper implementation of the AML/CFT Law.
788. As regards lawyers and public notaries, Section 27 paragraph 4 provides that the FAU may
request further details, documents or information in accordance with Section 24 from a lawyer or a
public notary via the Chamber. The lawyer or the public notary has to provide the required
information to the FAU via the Chamber covered by this. The auditors, chartered accountants and
tax advisors are not submitted to this obligation and they can submit the information directly to the
FAU.
789. It does not appear that there are any agreements or any other forms of co-operation to regulate the
procedures mentioned above, which would guarantee proper actions on the part of the FAU and the
confidentiality of the information requested.
790. It is noted that the FATF Recommendations allow DNFBP to send their STRs to their respective
self-regulatory organisations (SRO) but also require appropriate forms of co-operation between
these organisations and the FAU, and this issue should be addressed.
Applying Recommendation 14, 15 and 21
Recommendation 14
791. According to Section 18, paragraph 3 of the AML/CFT Law, the STR shall not reveal any
information about the obliged entity’s employee (including DNFBP) or “contractor” who had
reported the suspicious transaction.
792. Chapter Four of the AML/CFT Law (“Confidentiality”) establishes some specific provisions
(Sections 38 and 39) requiring the obliged entities and their employees to keep confidential the
facts related to STRs and the investigations performed by the FAU. The same provision on
confidentiality applies to the FAU, the supervisory authorities and their staff and does not end with
the person’s departure from his or her position in the obliged entities, the FAU or the supervisory
authority.
793. According to Section 40 paragraph 3 lawyers, public notaries, auditors, licensed executors are
obliged to keep confidential, in respect of the customer, the facts relating to STRs and
investigations. This does not apply to facts which, if disclosed to the customer, could prevent him
from being involved in criminal activity.
Recommendation 15
794. According to Section 21 of the AML/CFT Law, all obliged entities, among which all the
categories of DNFBP covered by the AML/CFT Law, have to establish and enforce adequate and
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appropriate internal procedures of internal control and communication. A number of DNFBP are
exempted from the requirement of maintaining written procedures if they do not have other
employees or contract to other persons (Section 21 (3)).
795. Casinos, real estate brokers and dealers and persons providing services in the framework of a
trust are also required to adopt internal procedures, policies and compliance checks in order to
fulfill AML/CFT obligations. The latter two may decide not to issue such internal procedures when
they do not employ staff under any form of other contract.
796. Internal procedures should include inter alia measures related to CDD, record keeping and
reporting requirements as prescribed in section 21 paragraph 5 of the AML/CFT Law.
797. According to Section 22, obliged entities, including the DNFBP covered by the AML/CFT Law,
are required to appoint a “contact person” (i.e. compliance officer) to report STRs to the FAU and
to maintain regular contacts with the FAU.
798. The AML/CFT Law is silent on the role and powers of the “contact persons”, as is the paragraph
indicating the content of the internal procedures (paragraph 5 of section 21).
799. According to Section 23 of the AML/CFT Law, DNFBP are also required to organise training on
AML/CFT matters on professional obligations, reporting requirements, trends and typologies.
Neither the law nor any other regulatory act contain any provisions as to the recruitment and
screening of employees.
800. As regards dealers in precious stones and metals there are no specific provisions in Section 28 to
adopt internal procedures and to implement the other requirements set out in Recommendation 15.
Recommendation 21
801. The Czech authorities informed the evaluators that the only way the awareness of financial
institutions and DNFBP is raised in respect of States which do not or insufficiently apply the FATF
Recommendations is through the information published on the website of the FAU.
802. There are no regulations, or any other enforceable means or recommendations issued by the
FAU or any respective associations or Chambers indicating the counter-measures that obliged
entities shall apply in the circumstances indicated above.
803. Under the AML/CFT Law, auditors are explicitly required to apply AML/CFT obligations.
804. As already indicated in Recommendation 13, according to Section 6 of the AML/CFT Law a
suspicious transaction is “a transaction the circumstances of which lead to a suspicion”. These
circumstances refer to money laundering, financing of terrorism and other situations supporting
such suspicion. This definition seems to be broad enough to cover other criminal acts which are
different from ML or TF.
805. The FAU should consider issuing specific clarifications on this matter.
806. The preventive measures are impacted by the fact that some of the categories of DNFBP are not
explicitly covered by the AML/CFT Law. In particular, dealers in precious metals and stones as
well as owners of internet casinos do not fall into the categories of obliged entities.
159
807. With regards to dealers in precious stones and metals, although they are required to perform
certain AML/CFT obligations when they carry out transactions exceeding the threshold, these
requirements are not however fully in line with Recommendation 16 (internal controls,
appointment of compliance officers). It is unclear whether confidentiality and tipping off apply to
these entities after the transaction is concluded.
808. The authorities are encouraged to tackle this deficiency all the more since representatives from
the General Directorate of Customs met during the visit indicated that there were instances of
precious stones being used for the laundering of illegal proceeds as indicated in paragraph 777 of
the 3rd MER.
809. The number of STRs received by DNFBP is extremely low.
810. The rules implemented by the Chambers of professionals as to the analysis of STRs and
dissemination to the FAU may be a factor that affects negatively the quality and quantity of the
disclosures. Furthermore, the fact that the FAU can obtain information and documents from
professionals only via the Chambers influences the effectiveness of the activities of the FAU in this
respect.
811. The lack of formal agreements between the FAU and the Chambers of the professions as to the
use and protection of sensitive information (STRs filed and requests made by the FAU) could
affect negatively the quantity and quality of disclosures.
812. It appears that the representatives of DNFBP are well aware of AML/CFT issues, but the low
number of STRs from the sector raises concerns as to the effective implementation by the DNFBP
of AML/CFT measures. The effectiveness of the reporting system might also be challenged by the
fact that the professionals have to send the STRs via their respective Chambers and that further
information can be sought by the FAU only via the Chambers.
4.2.2
813. DNFBP are under the same reporting obligations as financial institutions but some DNFBP
(lawyers, public notaries, accountants, etc) have to send their STRs via their respective Chambers.
Hence, the channels of co-operation between the FAU and the Chambers need to be formalised.
814. The requirement of Section 6 of the AML/CFT Law for the obliged entities to report as
suspicious all the transactions and operations listed in the Act could affect the level and the quality
of the reporting where the methods, trends and schemes are increasingly complex and
sophisticated.
815. The existence of legal privilege is applicable to all professionals. It applies also in the case of
requests for analyses carried out by the FAU. Such provision could limit the effectiveness of the
Czech FAU.
816. Protection and tipping-off provisions are in place, as well as requirements on internal procedures,
appointment of compliance officer and audit functions. The screening provisions of the FATF
Recommendations do not appear to be covered.
817. As regards FATF R.21 for DNFBP, formalised procedures to alert obliged entities are not in
place.
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4.2.3
Rating
R.16
PC
• The categories of dealers in precious metal and dealers in precious stones are
not explicitly covered by AML/CFT Law;
• There is no specific guidance to assist DNFBP detecting STRs;
• Low numbers of STRs received by DNFBP;
• The effectiveness of the system is negatively influenced by the listing of
suspicious transactions;
• Lack of formalised procedures issued by Czech authorities to make the
obliged entities aware on circumstances under Recommendation 21.
161
4.3
Regulation, supervision and monitoring (R.24 and R.25)
4.3.1
818. The FIU has a general supervisory competence vis-à-vis all DNFPB (Section 35 of the
AML/CFT Law). The specific supervisory bodies for each DNFBP are:
Casinos - the State Supervision on Betting Games and Lotteries (Ministry of Finance).
Auditors, tax advisors, executors, lawyers and notaries – their SRO (see below).
Traders in goods with cultural value or used goods - Czech Trade Inspection.
819. Dealers in precious metals and stones would only be monitored in the same way as any other
dealer in goods equal to or above euro 15.000 in cash. Given that there is a general prohibition on
payments in cash over euro 15.000, it is unclear what, if any monitoring would actually be required
in this situation. This only reinforces the evaluators’ view that, given the specific requirement in
the FATF Standards for dealers in precious metals and stones to be explicitly covered for
monitoring purposes, they should be formally required in the law and subject to monitoring. In
order to do this, the Czech authorities will need to asses whether such monitoring should be the
direct responsibility of the FIU or shared with a professional chamber in the same way as applies in
other parts of this sector.
820. The control of compliance of casinos is carried out by the FIU and also by the State Supervision
on Betting Games and lotteries. Both are part of the Ministry of Finance. The casinos
representatives told the evaluators that they cooperate with the FIU and that the on-site audit cycle
is approximately once a year.
821. The representative of the State Supervision on Betting Games and Lotteries considered that they
have sufficient technical and other resources to perform their functions. They have adequate staff ,
and powers and it was advised that their staff are familiar with AML/CFT issues (some of them are
AML/CFT experts).
822. While the State Supervision on Betting Games and Lotteries performed approximately 230,000
on-site inspections between 2005-2008, these cover all types of issues and the evaluators were
informed that there were no statistics on how many specific AML/CFT inspections, or if any, were
carried out.
823. Mandatory licensing is part of the supervision tasks of the State Supervision on Betting Games
and Lotteries under Act No. 202/1990 Coll. A fit and proper test is required whenever a person
asks for an authorisation (licence).
824. The FIU has the possibility to require the professional chambers to conduct inspections and share
the results with the FIU (AML/CFT Law, Section 37 paragraph 2). However, it appears that
sharing of the results is carried out on few occasions mainly because there are few inspections
carried out or reluctance by some of the professional chambers to share their findings with the FIU.
825. From the discussions held on site, the supervisors are aware of their responsibilities and do
ensure in practice that financial institutions under their control implement the requirements of the
AML/CFT Law. Some of them use targeted inspections in respect of the requirements of the Act.
However little information was available about CFT specific attention paid by the supervisors.
826. In response to clarification after the on-site visit, the professional chambers (SROs) stated that:
162
The Czech Bar Association performed 11 AML/CFT inspections in the period between
2007-5/2010. Inspections on compliance with AML/CFT Law can be exercised by
members of the inspection council (54 members), especially its economics section (14
members). Inspections are being conducted on the basis of initiations submitted to the
inspection council.
To date, the Chambers of Auditors do not perform inspections exclusively on AML issues.
Between 2007-5/2010 they performed 445 general inspections, of which the quality of and
compliance with AML rules is a part. Inspections are covered by 11 members of the
Supervisory Commission of the Chamber of Auditors and 6 members of the Inspection
subdivision. The inspections must be conducted every 6 years at least; in the case of some
audits the period is 3 years.
The Chamber of Tax Advisers does not perform AML/CFT specific inspections. The AML
issue is a part of the regular inspection covered by 5 members of the Supervisory
Commission of the Chamber of Tax Advisers with the support of two lawyers from the
Office of the Chamber. If the Commission receives any requests in respect of the
AML/CFT issue, it will immediately act and the inspection would be focused exclusively
on AML issues. To date, there was no such a request. There are thus no serious findings
regarding AML/CFT issues to-date.
827. In a meeting with the DNFPB representatives the evaluators were informed that none of the
Professional Chambers provide the UN Security Council list to their members. They also noted
that they have hardly any specific guidelines relating to the financing of terrorism.
828. The professional Chamber of Lawyers (Bar Association), other DNFPB (the real estate agents,
accountants and trust and company service providers) remain the responsibility of the FIU under
section 35 of the AML/CFT. As indicated by the FIU representative, at the time of the on-site visit
the FIU does not have adequate resources to perform sufficient on-site inspections.
829. It appears that more efforts should be made in the field of on-site supervision, by the professional
chambers. In fact, the evaluators were concerned that few inspections targeted on AML/CFT issues
have been performed until now. Bearing in mind that supervision has mostly focused so far on
formal requirements to verify the implementation of particular AML measures in practice). The
evaluators believe that the lack of supervision could affect the quantity and the quality of the
supervised entities STRs adversely.
required pursuant to FATF recommendation 25.1.
case to Law enforcement.
832. All financial Institutions and the DNFPB informed the evaluators that the FIU "works closely"
with the obligated entities. They confirmed that the FIU provides clarifications, opinions etc. on
issues related to the prohibition on money laundering through various means including verbal
advice, letters, E-mail, etc. In fact, the FIU noted that a large part of their time is devoted to
answering queries from various obligated entities. As part of the cooperation with financial
163
institutions and professional associations, the FIU personnel provides training to professional
bodies as well as delivering presentations during conferences/seminars organised by the
professional bodies.
833. The FIU also provides on its website, information/explanations relating to identification issues,
credit cards, PEPs, CDD, reporting obligations, suspension of a transaction, confidentiality, third
country equivalence, exemptions, etc. The website also contains forms, templates, relevant
legislation (both Czech and European), and some MONEYVAL/FATF documents. However, this
information does not appear to be considered as a guidance by almost of the financial institutions
and DNFBP to assist them in the practical implementation of and compliance with AML/CFT
requirements. Indeed, a number of institutions stated that they would appreciate specific guidance
on a number of issues, as described throughout this report.
834. Some supervisory bodies of DNFPB (lawyers, tax advisers, auditors and real estate agents) have
also issued guidelines. The evaluators were also informed that some of the professional entities
consulted the FIU personnel and involved them in the formulation of these guidelines.
Representatives of the professional bodies noted that they themselves have not issued any specific
guidelines relating to the financing of terrorism.
835. The FIU should provide feedback to the financial entities and other obliged entities over and
beyond the general and statistical information, as set out above.
knowledge across the sector.
837. The figures and statistics provided to the evaluators seem to indicate that the DNFBP have
difficulties to assess properly the reporting requirements and to detect suspicious transactions,
which may be due in considerable measure to the lack of training for DNFBP in this respect;
838. There was a general lack of awareness among representatives of DNFBP whom the evaluators
met. AML/CFT training programs must be put in place in order to raise awareness.
839. There is no regular dialogue (including training) between public authorities and the NPO entities
conducted on the subject of financing of terrorism.
840. The Supervisory Division of the FAU could usefully be augmented with staff.
Effectiveness and efficiency (R.24 and R.25)
841. The professional chambers of the Auditors, tax advisors, executors, lawyers and notaries are
primarily responsible for AML/CFT supervision and any sanctioning, though the evaluators were
concerned that the professional chambers did not routinely share the results with the FIU.
842. The FIU has the possibility to require the professional Chambers to conduct inspections and share
the results with the FIU (Section 37(2)), but this seems to be an exceptional procedure. For certain
sectors (dealers in precious metals and stones; trust and company service providers) there is no
authority to perform inspections. So far, the auditors chamber and the Tax Advisers Chamber have
not implemented inspections exclusively focused on AML/CFT rules.
843. The existing legislation seems to grant the supervisory authorities power to impose sanctions.
164
4.3.2
Recommendation 24
844. Explicit authority to monitor for AML/CFT purposes needs to be put in place in respect of
dealers in precious metals and stones so that they are subject to effective risk based monitoring.
845. The FIU should conduct a survey on the size of the sector dealing with precious metals and
stones and its vulnerability to ML/FT and develop a risk based assessment for monitoring and
ensuring their compliance with requirements to combat ML and FT.
846. The FIU should develop a clear risk based strategy for effective monitoring of those other
DNFBP that are not covered by the arrangements with the professional bodies, in particular real
estate agents, trust and company service providers (where not otherwise covered).
847. The AML/CFT risks in the casinos require continuing active AML/CFT supervision and
sanctioning.
848. More formal cooperation agreements need to be instituted by the FIU and the professional
chambers in order to ensure a more coordinated and consistent level of AML/CFT supervision of
these professionals.
849. As noted above, the professional chambers of the Lawyers etc. are primarily responsible for
AML/CFT supervision and any sanctioning. The evaluators were concerned that the professional
chambers did not routinely share the results with the FIU. No ML sanctions had been taken. The
FIU has the possibility to require the professional chambers to conduct inspections and share the
results with the FIU (Section 37(2)), but, as has been noted above, this seems to be an exceptional
procedure. The evaluators consider that more formal cooperation agreements need to be instituted
by the FIU and the professional chambers in order to ensure a more coordinated and consistent
level of AML/CFT supervision of these professionals. In particular, the FIU and the professional
chambers should achieve working arrangements on how to apply Section 37(2) of the AML Act.
850. The AML/CFT supervision by the professional chambers appears to the evaluators to lack focus
on AML/CFT issues. It is recommended that the professional chambers review their AML/CFT
strategy to ensure that it fulfils its obligations under the AML Act.
851. The Professional Chambers should provide a CFT list to its members and specific guidelines
relating to the financing of terrorism.
Recommendation 25 (c.25.1 and 2 [DNFBP])
required pursuant to the Methodology criterion 25.1.
case to Law enforcement.
165
4.3.3
Compliance with Recommendations 24 and 25 (Criterion 25.1, DNFBP)
Summary of factors relevant to s.4.3
underlying overall rating
Rating
R.24
PC
R.25
PC
• Problematic cooperation between the FIU and the professional chambers
regarding AML/CFT supervision.
• No authority performs inspections on some DNFPB and others do not have
exclusive inspection competence on AML/CFT.
• No sanctions have been imposed so far.
• Poor understanding regarding financing of terrorism.
•
•
•
•
Insufficient guidelines on AML and CFT techniques and methods.
Not enough case specific feedback.
Insufficient sector specific guidelines.
The FIU provides general feedback, but the requests for feedback as required
by the FATF methodology are not met in light of the strict implementation
of the Law.
166
5.
LEGAL PERSONS
ORGANISATIONS
AND
ARRANGEMENTS
AND
NON-PROFIT
5.1
Legal persons – Access to beneficial ownership and control information (R.33)
Overview of commercial laws and mechanisms governing legal persons and arrangements
5.1.1
Description and Analysis
854. As it was confirmed by the Czech authorities, no “major changes” had taken place since the 3rd
round evaluation in this field and therefore all information provided in Section 1.4 of the 3rd MER
remains valid. Although the evaluators were not provided with comparative excerpts of the
respective underlying legislation they acknowledge that no “minor” changes that might have been
carried out in the Commercial Code or any other related legislation affect the main provisions that
are subject to evaluation under R.33.
855. Instead of a detailed description, the evaluators thus only refer to the specific types of
commercial companies as listed in the previous report, that is, the unlimited partnership (general
business partnership, usually abbreviated as “v.o.s.”) limited partnership (“k.s.”) limited liability
company (“s.r.o.”) and joint stock company (“a.s.”) for which the general rules of foundation and
the constituting documents thereto are precisely described there. The same goes for the
cooperatives as well as the European companies and European economic interest groupings.
The registration procedure, however, has changed since the last evaluation as the Czech Republic
introduced an electronic Company Register as from 1st January 2007 which brought about some
significant changes in the registration procedure as will be discussed in more detail below.
856. In the 3rd round of evaluation, the Czech Republic was found to be non compliant with the
requirements of Recommendation 33. The system in place at the time of the 3rd round onsite for the
registration of legal persons did not ensure a sufficient level of reliability of the information
registered nor of transparency of beneficial ownership of legal persons. This was considered a
particular issue given the possibility for companies to issue bearer shares which were freely
transferable, and which were seen as a problem by law enforcement agencies.
857. It was therefore recommended to review the procedures applicable to the registry of commercial
entities and the registration procedure, to increase the reliability and updating of information
entered. This should have included incentives to keep the registry up-to-date and measures to
ensure a higher level of professional integrity of the courts, staff in charge of the registers. It was
also recommended to take appropriate measures to ensure that bearer transferable shares are not
misused for AML/CFT purposes.
858. As discussed in the 3rd MER the Czech regional courts are entrusted with, among other duties, the
administration of the commercial registry. The general rules of procedure for establishing a
company and the type of companies that can be registered with the commercial register were
described in the 3rd round MER and by and large the situation remains unchanged, including the
range of documents and data required to be provided when forming a company. The following part
of the report should therefore be read in conjunction with the respective part of the previous one.
859. The main development in this area was the establishment of the electronic Commercial Register.
It was made possible by the amendment of the Commercial Code (No. 216/2005 Coll. and No.
79/2006 Coll. together with the Regulation No. 562/2006 Coll.) which significantly changed the
167
registration procedure. The main changes these amendments brought about significantly
accelerated the registration procedure and provided more transparency of the data entered into the
register.
860. As from 1st January 2007, the computerisation of the Commercial Register makes it possible to
submit an electronic version of an application to a court with the certified electronic signature. The
Commercial register court issues a copy of a form always entered into the register as a printed hard
copy or in an electronic version. It is compulsory to use a form for the submission of a request to
enter new (or modified) data into the register. There was a 5 working day period introduced, within
which a court has to issue a decision about such a request, either by deciding in the merits of the
request or, if the request is incomplete, by requiring some supplementary facts within a given
period of time. In special cases, e.g. company conversion, a longer period of time (15 working
days) is applied. If a court fails to decide within the given period then, as the Czech authorities
indicated in the answer to the questionnaire ”the legal fiction comes in force” which means that all
the facts contained in a request will be entered into the register even if they do not meet the
respective legal requirements.
861. While the procedure of the Commercial Register was accelerated, the reviewing power of the
Court was, to some extent, restricted or, according to the Czech authorities to “preserve it at a
necessary level” and legal rules were introduced. The reviewing role of the Court is now limited
when the facts in a request are based on a notarial deed or on a declaratory facts record as these
data can directly be entered into the register, without a specific court decision. The Czech
authorities admitted that this regulation had actually caused some difficulties as there had been
some facts entered into the register without having the required legal elements but based on
notarial deeds. This potential deficiency was, to some extent, remedied by a subsequent practice of
the courts according to which now it is considered to be necessary to review whether the facts in
notarial deeds are in accordance with the law (and if not, the court has to dismiss the request).
862. As to the former, the Czech authorities admitted that this regulation had actually caused some
difficulties as there had been some facts entered into the register without having the required legal
elements but based on notarial deeds. This potential deficiency was, to some extent, remedied by a
subsequent practice of the courts according to which now it is considered to be necessary to review
whether the facts in notarial deeds are in accordance with the law (and if not, the court has to
dismiss the request).
863. The second option is when data are submitted on a so-called declaratory facts record. In case
the legal effect of a data does not come with entering it into the Commercial register and
hence its registration has a merely declaratory effect (e.g. a change in statutory bodies, a
decision on the dissolution of the company, a nomination of a liquidator of the company, an
agreement on share transfer etc.) the Court would only check whether all the letters are
formally correct and if so, the data must be entered into the register without a specific court
decision. If, however, entering of a data has direct constitutive effect (e.g. the creation of a
company and its entering into the Register, its removal from there, the change of business name,
increase and decrease of the company capital etc.) the Court fully reviews all the data and
then brings a specific court decision.
864. These amendments were already foreseen at the time of the 3rd evaluation and the then examiners
doubted that accelerating the registration process would improve the situation and feared that it
could contribute to the lowering of the level of accuracy and reliability of the information entered
into the register. Now that the new procedures are in place, the current evaluators consider these
concerns founded.
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865. The new rules are designed to support the easing and acceleration of the process and should be
considered as an improvement. However, according to the requirements of R.33 the changes
relating to the accuracy, veracity and reliability of the registered data either do not have any impact
or have a rather negative one as the reliability of the registered information may suffer from the
acceleration of the procedure.
866. Apart from the acceleration of the procedure the amendments were also designed to improve the
transparency of the registered data. The Commercial Register Court keeps a Collection of
documents for every legal person and it is compulsory to submit required documents to this
collection. By virtue of the Regulation of Ministry of Justice No. 562/2006 Coll. the collection of
documents was kept in electronic form since 1 January 2007 and the documents submitted to this
collection can be found at www.justice.cz. Art. 38i of the amended Commercial Code establishes
the list of documents to be submitted and can be also found on the Internet. The evaluators
appreciate the importance of these amendments for the business sector but they do not meet the
requirements under R.33.
867. Criterion 33.2 requires that competent authorities be able to obtain or have access in a timely
fashion to adequate, accurate and current information on the beneficial ownership and control of
legal persons and this information is not required in the company register. There have not been any
improvements since the 3rd MER as to the access to information on the ownership of companies
(and particularly joint stock companies) in particular on the ultimate beneficial owners
(cf. Criterion 33.3). The prosecutors met onsite informed the evaluators that the limited access to
information on the beneficial ownership was an obstacle in cases where the company was
represented by a straw man (“white horse”) in transactions claiming that he/she was the fully
responsible owner of the company.
868. Notwithstanding that, the evaluators also acknowledge that the introduction of the online and free
of charge available database of registered data and documents has effectively facilitated more
immediate access by law enforcement authorities to company information which is a development
compared to the time of the third round visit when excerpts of the registry could only be obtained
from the respective court in hard copy.
869. The evaluators note that Section 8(2b) and 9 of the AML/CFT Law requires disclosing the
ownership structure of the company, including the beneficial ownership, in the framework of the
customer identification procedure and CDD measures. The beneficial ownership definition in
Section 4(4) of the above mentioned Act is in line with the FATF standards.
870. Since the 3rd MER some deficiencies in the previous regime have been remedied. It is now
explicit in the legislation that the entrepreneurs shall inform the Commercial Registry Court
whenever there are any changes in the company status, the structure of ownership, otherwise they
can be subjected to sanction, including penal – according to the Penal Code the breach of
entrepreneurs, duties with respect to the Commercial registry is considered as criminal offence
(distortion of information about property management in Art. 254 CC). As for the companies
themselves, they have administrative liability for breaching their duty to inform the Commercial
Register about any changes in their ownership structure, registered capital or board membership. In
addition, any changes of corporate registered capital must be performed through company bank
account (regardless of the sum involved) as no cash payment is allowed any more.
871. The law stipulates which information is to be entered into the commercial register – Section 35 of
the Commercial Code and the provisions for the different types of a business company. Each action
taken before the Commercial Register Court should bear a certified signature and be supported by
a power of attorney. According to the Czech authorities these provisions prevent others other than
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the entrepreneur from submitting a request to the Commercial Register and having false facts
entered therein.
872. The Court is also authorised to open a procedure ex officio (without a petition) and this power has
now been strengthened in cases where it is necessary to harmonise the entry in the Commercial
Register with the reality. This process can be applied in case of dissolution of companies and
according to the 3rd MER have been implemented.
873. At the time of the 3rd round visit, the Commercial Code (Art. 156 etc.) allowed shares to be
issued as registered shares or bearer shares, and companies could freely issue bearer shares in
certified (paper) or non-certified (non-paper) form. Bearer shares were freely transferable and
transferability was unrestricted unless the statutes of the respective entity provided otherwise.
874. As far as bearer shares are concerned, the current evaluators have found an identical situation and
changes are still pending in draft legislation. The Ministry of Justice advise in the MEQ that there
was a draft law under discussion in the Chamber of Deputies to abandon the paper form of bearer
shares. The draft law would require joint stock companies that use paper form bearer shares to
change the form of such shares to electronic so as to make the ownership structure more
transparent. The examiners were not provided with the draft and it was not adopted in the twomonth period subsequent to the visit. According to the authorities the cancelation of bearer shares
had been considered but the Legislative Council of the Government rejected the idea, arguing that
such a conceptual change would cause more problems.
875. While in some types of companies there is information on ownership and control of legal persons
publicly available, there are other company forms where the structure is anonymous (joint stock
company) which makes it more difficult to identify the ownership structure of such a company.
The ways of knowing who the shareholders of a joint stock company are thus the same as
described in the 3rd round MER, including the Czech Securities Commission (CSC) register of
shareholders of stock market companies where acquisitions above 5% of the ownership must be
authorised by the Commission (but this does not refer to companies not listed on the stock market)
or having a look at the list of participants at the annual shareholders, meetings. It should be noted
that in the latter case, the conditions for the public announcement of a call for a general meeting
have also changed and a joint stock company with bearer shares has to mandatorily publish such a
call in the Commercial Journal. This source of information can, however, be meaningless if the
meeting report remains silent about the possible representation of shareholders.
876. The Czech authorities admitted that the possibility of issuing bearer shares was an obstacle to the
access to ownership structure and that owners of such shares cannot be controlled. As at the time of
the previous visit, the representatives of the law enforcement and prosecution disclosed that bearer
shares were a source of difficulty for their investigations. In particular, bearer shares were seen as
source of corruption in relation to public procurement and therefore draft amendments to the Law
on Public Procurement were prepared according to which companies taking part in public
procurement would have to disclose their structure of owners. At the time of the on-site visit, the
draft was discussed in the Senate and no information about the outcome of this amendment has
since been communicated to the evaluation team.
877. Out of the 3rd round recommendations, the higher level of professional integrity of the courts,
staff is the one that appears to be fulfilled by the time of the 4th round visit. The examiners learnt
that non-judge professionals with specialised judicial education (called judicial officers) were
commissioned to deal with the cases at the Commercial register, where judges now decide in
complicated cases or in appeals against decisions of judicial officers only. The employment of
judicial officers improved the personnel situation. The personnel involved in company registration
had been involved in special legal education since 2008 (although mainly as it was required by the
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new, computerised registration procedure which, as described above, appears to serve purposes
other than meeting the requirements in R.33).
5.1.2
Recommendations and Comments
878. The evaluators acknowledge the efforts the Czech authorities put into the computerisation and
acceleration of the company registration procedure which is very favourable and in line with
European legal development. In addition, the immediate and free-of-charge availability of
registered company data and documents via internet helpfully facilitates the access of law
enforcement authorities to such information. On the other hand, the specific deficiencies in
achieving compliance with R.33 has not or has not sufficiently been addressed by the lawmakers.
Despite the acceleration of the procedure, the registration of business entities still does not ensure
an adequate level of reliability of information registered. Transparency of ownership structure does
not provide more information on beneficial ownership. No particular counter-measures have been
taken against the issuance of freely transferable bearer shares.
5.1.3
Rating
R.33
PC
•
•
•
Despite the acceleration of the procedure, the registration of business
entities still does not ensure an adequate level of reliability of information
registered;
Transparency of ownership structure does not provide more information on
beneficial ownership;
No particular counter-measures have been taken against the issuance of
freely transferable bearer shares.
5.2
Non-profit organisations (SR.VIII)
5.2.1
Special Recommendation VIII (rated PC in the 3rd round MER)
879. The 3rd evaluation report noted that no particular measures had been taken to limit the use of
NPOs for FT purposes.
880. After a first analysis of misuses of NPOs for criminal purposes carried out in 2006 and other
efforts to raise awareness of the NPO sector about the necessity of certification and increasing
transparency, the Czech authorities decided to commission the Faculty of International Relations,
University of Economics in Prague to collaborate in this process, and the resulting project was
a research document “transparent functioning of NPOs in the Czech Republic, focused on
prevention against misuses of NPOs for financing of terrorism”. Nevertheless, NPOs regulation has
turned out to be a very sensitive problem. Taking into account the Czech Republic recent history,
legislators have to design their counter-terrorism measures carefully in order not to be seen by
society as placing unacceptable limitations on the fundamental rights and freedom.
881. There are no figures or statistics on the overall number of NPOs, nor economic figures relating to
the largest of them. Nevertheless, there is an important amount of information publicly available in
the 4 different Registers in which all of them have to be licensed. The problem is that in spite of
the existence of an Advisory Council for NPOs within the Office of Government, that provides one
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gateway through which all Web-based versions of these registers are accessible, there is not a
really comprehensive risk analysis of this sector, particularly of the amount of funds managed by
each type of entity. Therefore, a risk based approach taking into account, for example, the size of
the organisation, the amount of funds it handles, and its specific objectives has not been tackled.
882. The only statistics that have been submitted are 4 global figures related to the “States
Subventions for NPOs in 2008” detailing the institutions that were providing this help: Ministries,
Regional Governments, Municipalities or State funds.
883. Freedom of association is protected by the Constitution as a fundamental right. The law provides
that those associations whose aims or activities violate the legal or constitutional order shall be
banned.
884. The Government adopted a Decree on a National Action Plan to Combat Terrorism (2005-2007)
with a Plan of Measures on the Fight against Terrorism. The documents contained a risk analysis
on the NPO sector and indicated that the legislation on the financial operation of foundations and
other social organisations will be revisited.
885. The Ministry of Interior prepared a first draft which was used as a basis for a research project on
“Increasing transparency of non-profit sector activities in the Czech Republic with particular
emphasis on prevention of its misuse for financing of terrorism”. A National Action Plan to
Combat Terrorism report was finalised in 2009.
886. The most important shortcomings pointed out in the document were:
• Only approximately 1/3 of NPOs researched provide publicly available information by
themselves (e.g. websites); very few have adopted ethical and fundraising codes of conduct,
less than 1/10 of them publish annual reports.
• The lack of official and public registers of all NPOs, that include financial reports, by laws,
registration notifications is of concern.
• The legal requirements are different for each type of NPO.
• While civil associations enjoy relatively less strict regulation, the strengthening of
requirements there would carry a high risk of impeding the emergence of associations (most
common type of interest-based community, such as sporting clubs, etc.).
• Foundations and foundation funds appear to be regulated in a transparent way. The need to
have financial reports and annual financial statements audited and filed with a court registry
limits certain risks posed e.g. by the possibility of accepting small amounts from anonymous
donors. However, the compliance rate of the foundations is not high enough. Approximately
4/10 of the foundations researched did not comply with the established legal requirements.
This is most probably due to a lack of professionalism, but there is some scope for misuse of
this environment.
• No significant concerns are linked to the misuse of schools for terrorist-related activities,
including religious schools; however there are gaps in transparency requirements as regards
funding of schools accredited in emerging economies, such as Eastern Europe, and active in
Czech territory.
887. The report concluded there were no grounds conducive for terrorist activities in the Czech
Republic, as the minorities that might in theory be radicalised are very small. Therefore, it
indicated no urgent or serious risk of misuse of NPOs in the Czech Republic for the purpose of
terrorist financing, but found that deficiencies exist generally with regard to either state powers or
enforcement of certain types of NPOs or aspects of their activities.
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888. No legal changes have been made relating to the NPO legislation since the 3rd round assessment.
As described in the questionnaire there are 4 registered different types of NPOs:
•
•
•
•
Civil associations under Act No. 83/1990 Coll.
Universally beneficial societies under Act No. 248/1995 Coll.
Ecclesiastical legal persons under Act No. 3/2002 Coll.
Foundations under Act No. 227/1997 Coll.
889. For all of them it is clearly stipulated that at the moment of the registration these entities have to
present:
•
•
•
•
•
•
•
documents demonstrating the foundation;
founders identity (e.g. preparatory committee) and representatives;
goals/purposes/activity;
headquarters;
deciding body and rules;
organisational units - if applicable;
principles of housekeeping.
890. For the beneficial societies, ecclesiastical legal person and foundations, annual reports are
required. These documents have to contain an overview of activities, final accounts, statement of
verification by auditor if applicable (for universally beneficial societies and foundations it is
compulsory, for ecclesiastical legal persons it is applicable if they apply for subsidies), overview of
incomes (compared with resources) and expenditures, development and final state of funds and
properties. From the AML/CFT perspective, it is possible to find references to foundations and
associations in AML Act 253/2208.
891. Section 4 related to Other Definitions, describes in article 4) the meaning of the beneficial owner
for a foundation or a foundation fund in letter b), and in letter c) for the case of associations. What
is more, according to Section 2.article 1 letter e) of the AML/CFT Law, a legal entity which
receives payments in cash in an amount of, or exceeding, EUR 15,000, should be considered an
obliged entity under the AML act. Nevertheless, this option is suspended to a large extent, since
the Act No. 254/2004 Coll. on Limitation of Cash Payments prohibits these large cash payments.
According to Act No. 563/1991 Coll. on Bookkeeping, Section 31, all entities are obliged to keep
their documents for five years. The Annual Report and Books must be kept for 10 years.
892. The National Action Plan to Combat Terrorism (2007-2009) reiterates (p. 6) that the EU actively
deals with many topics, which must be addressed in the Czech Republic including “limiting the
opportunities for misusing the non-governmental sector for terrorist financing”. The National
Action Plan also provides:
• to increase the capacity of police to gather intelligence on “informal” or minority-based
cross-border flows of money that may be misused for terrorist activity,
• to propose a mechanism enabling Police to identify in which financial institutions a suspect
individual holds accounts.
893. In spite of the outreach activities carried out to raise the awareness in the NPO sector about the
risks of terrorist abuse, specific measures of protection against such abuse have not been
implemented in a comprehensive way: therefore there is not a clear awareness by sector
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supervisors, obliged entities or NPOs themselves, that this sector can fall under the threat of
financing of terrorism
894. There is effective co-operation, co-ordination and information sharing among the authorities and
organisations that hold relevant information on NPOs. There was found to be operational
coordination on this issue in particular between the criminal police, national intelligence, the FAU
and Customs. Task forces have been established which regularly exchange information on
suspicions of terrorism.
895. Information contained in different Registers, managed by the Ministry of Interior, the Ministry of
Culture and “registering” courts, are available to the authorities that fight against the money
laundering and financing of terrorism. According to Section 30 and 24 of AML/CFT Law there is a
general requirement to submit the information to the FAU that it may request for compliance with
obligations under this Act from the Police of the Czech Republic, intelligence services and other
public authorities.
896. When investigating a suspicious transaction, the Ministry may, pursuant to the Tax
Administration Act, request from the competent authorities information obtained in the course of
verification by the tax authorities. The latter shall immediately inform the Ministry of any
suspicion that a taxpayer is using the tax administration for the legitimisation of the proceeds of
crime or financing of terrorism.
897. According to Section 33 of the AML/CFT Law the FAU can share information on NPOs with its
foreign counterparts.
898. Since the 3rd MER some steps have been undertaken to increase the awareness on the FT risks
among the NPO sector.
5.2.2
899. The authorities have made efforts in this area - the Ministry of Interior (in co-operation with other
authorities) carried out a review of the sector, references to foundations were included in the
AML/CFT Law, and guidelines aiming at enhancing the transparency of the sector were prepared.
However:
• it appears that there is a lack of comprehensive understanding of the economic power of this
sector, since the information on the 4 existing types of NPOs is spread among Registers kept
by 3 different authorities;
• the legal framework was not amended since the 3rd MER;
• there are no requirements for NPOs in the registration documents or in the forms for tax
benefits to provide the information recommended under the Interpretative Note to SR.VIII;
• apart from the supervision performed by Tax Authorities, or by the public authorities
responsible for the registration and licensing of NPOs, there is no specific supervision
regarding the prevention of NPOs misuse for financing of terrorism. No statistics about
administrative sanctions have been provided to the evaluators.
900. Despite fluent and frequent communication between FAU and obliged entities, it does not seem
that there are specific guidelines advising on the threat of misusing the NPOs for terrorism
financing.
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901. There is no regular dialogue between public authorities and the NPO entities conducted on the
subject of financing of terrorism.
902. There are no regular contacts between FAU and NPOs supervisory Boards which can be a source
of information for the Ministry as to shortcomings found during inspections. It does not seem that
the Board refers information that can involve ML and TF to the FAU, so the latter can act
according to Section 30 of the AML/CFT Law. Neither supervision, nor sanctions have been
imposed on those NPOs which accept large cash payments (above 15,000€), for failure to comply
with AML/CFT Law requirements.
5.2.3
Compliance with Special Recommendation VIII
Rating
SR.VIII
PC
• Lack of fully comprehensive review of domestic NPOs in order to obtain
a clear picture of all the legal entities that perform as NPOs, especially
ones of potential high risk;
• Insufficient awareness raising campaigns in the NPO sector, and obliged
entities, regarding potentially vulnerable NPOs;
• Lack of “know your beneficiary and associate” rules for NPOs, excepting
those who become obliged entities under AML, in the hypothetical case
of accepting large cash payments;
• Insufficient targeted supervision or monitoring of NPOs which control
significant portions of the financial resources of the sector and substantial
shares of the sector’s international activities;
• Insufficient training and awareness concerning the CFT risks in the NPO
sector by the sector itself and within the relevant public authorities with
responsibilities in this area.
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6.
NATIONAL AND INTERNATIONAL CO-OPERATION
6.1
National co-operation (R.31)
6.1.1.
903. Under FATF R.31, Policy makers and competent authorities should co-operate and co-ordinate
domestically on activities (in particular “operational co-ordination” among LEAs and FIU) and on
policies.
904. Consultations among competent authorities and private sector (such as financial institutions, their
associations, DNFBPs representatives) should also be taken into consideration.
Institutional setting
905. Despite the fact there is no provision in the AML/CFT Law on national policy co-ordination and
co-operation among competent authorities (Judicial Authority, Law Enforcement Authorities,
FAU, Supervisors and other competent authorities) the Czech authorities have focused their
attention on the coordinating function of the FIU.
906. In fact, following the discussion held on site with several domestic authorities and representatives
of the industries, the evaluators recognise the key role played by the FIU in coordinating the STR
analysis with the activities of the Judicial Authorities, Police, CNB and other supervisors. Also,
the FIU is responsible for carrying out consultation with the private sector on AML/CFT issues.
907. By law, the FIU has the power to request information from obliged persons and their associations
and chambers, law enforcement (police services and prosecutors’ offices), intelligence services and
National Security Office, Tax Administration, Customs and other governmental authorities.
908. For efficiency reasons, the FIU is electronically connected - via Moneyweb - with the Service for
Combating Corruption and Financial Crime (information exchange) and with major banks
(for receiving STRs and requested information).
909. However, the Czech authorities, in the view of the evaluators, still need to give more serious
consideration to adopting legislative or other measures targeting domestic cooperation at the policy
level and to develop more formal and structured arrangements for cooperation at the operational
level, which could also usefully include regular consultation with the private sector and the
professional chambers of those DNFBP that route their STRs through their professional bodies.
Cooperation among domestic authorities
910. At the time of the third round evaluation report, an operational working group was in existence
which, when it met, was attended by the relevant competent authorities involved in the AML/CFT
framework (the Clearing House). This group is no longer in place, a development which is
regretted by the evaluators. There is no other formal and institutionalised mechanism for
operational cooperation among domestic authorities currently in existence, though it is
acknowledged that ad hoc operational cooperation can and does take place, as indicated below (and
in the case of coordination between the FIU and law enforcement through a protocol).
176
Cooperation between LEAs and FIU
911. The Czech authorities have indicated that the FIU cooperates with a large range of subjects, from
the governmental authorities to the representatives of the private sector.
912. From Law enforcement authorities side, the FIU cooperates mainly with the “Unit for Combating
Corruption and Financial Crime” and with the “Organised Crime Unit” of the Czech Police.
Cooperation with the police is based on a protocol signed by representatives of the Ministry of
Finance and the Ministry of Interior. The cooperation consists in intelligence exchange, regular
consultations on individual cases and annual or ad hoc mutual evaluations to assess the
effectiveness of their cooperation at the operational level.
Cooperation between the FIU and Supervisory Authorities
913. According to the Czech authorities supervisory inspections on financial institutions may be
carried out jointly between the FIU and the CNB.
914. According to Section 35 of the AML/CFT Law, the FIU shall provide information about its
activities to the other supervisory bodies. Also, at the request of the FIU, the other supervisory
bodies shall provide their opinions or any other co-operation as requested. In addition, if the
supervisory authority finds facts that might be related to money laundering or financing of
terrorism, it shall immediately inform the FIU and provide all information in the context of
suspicious transaction reporting.
915. At the time of the on-site visit, the FIU and CNB did not refer to any agreement or joint
inspection programme. CNB has however informed the evaluators that there is an agreement
between the two authorities on legal issues, including AML/CFT matters.
916. CNB has stated that the AML/CFT deficiencies identified during the on site inspections are
reported to the FIU for sanctioning. On the occasion of such inspections, 9 banks were found not to
have reported any STR to the FIU.
917. Considering the fact the FIU is the authority in charge of analysing STRs, it would be useful to
generate more feedback to the supervisory authorities on cases, trends, best practices and
circumstances that might be suspicious. More formalised cooperation between the FIU and the
other supervisors could be beneficial too.
Consultation between the FIU/Supervisory Authorities and Private sector
918. Regarding the non-financial sector, according to AML/CFT Law, the FIU cooperates with the
respective self-regulatory or supervisory authorities: the professional chambers (for lawyers, public
notaries auditors, licensed executors and tax advisors); Municipalities/Regional
Authority/Financial tax offices (for betting games licence holders); Czech Trade Inspection (for
entities licensed to trade in items of cultural heritage or cultural value, or to act as intermediary in
such services; and the entities licensed to trade in used goods, which act as intermediaries in such
trading, or receive used goods that have been pawned.
919. As part of the above mentioned cooperation, according to AML/CFT Law, Section 37, paragraph
2, the FIU has the possibility to require the professional chambers to conduct inspections and share
results with the FIU. However, it appears that in practice such cooperation is only occasional, as
there are few inspections carried out. Besides, it appeared that the professional chambers are
sometimes reluctant to share their findings with the FIU.
177
920. There is no information as to the cooperation between FIU and the other two nominated
supervisory authorities, namely the Municipalities/Regional Authority Financial tax offices and the
Czech Trade Inspection.
921. In order to increase the knowledge on ML/FT issues, the Czech authorities have indicated that the
competent authorities organise, periodically, events with the private sector. Nevertheless, some
more structured and regular formal meetings should be established with professional associations
(particularly to analyse together the reasons for such low reporting by DNFBP) and representatives
of the obliged parties.
922. While the FIU is playing a significant role in coordinating and assisting national authorities
(Police, Prosecutors, Judicial Authority) on an “ad hoc” or “case by case” basis, there are no
agreements, bilateral or multilateral, that establish formal institutional operational cooperation
among domestic competent authorities and no regular formal collaboration between these
authorities and with the private sector (other than on an ad hoc basis) that facilitates consultation
on AML/CFT matters.
6.1.2.
923. Despite the important role played by the FAU to coordinate national competent authorities and to
conduct consultations with the private sector, there are not regular institutionalised mechanisms of
operational coordination and information exchange among competent authorities.
924. It is strongly advised that a mechanism of internal operational cooperation (involving all the main
AML/CFT Laws) should be established, to assess periodically AML/CFT vulnerabilities, trends,
challenges and any relevant proposals or initiatives. This mechanism could also assist Czech
authorities in the drafting of an AML/CFT national strategy and risk assessment.
925. Equally, there is no body or structure for the periodic, collective evaluation at the policy level of
the results of the domestic AML/CFT Law and the effectiveness of the AML/CFT system as a
whole, with a view to reporting to ministers on the effectiveness of national AML/CFT measures.
926. Bearing in mind the comments at para 869 of the 3rd round MER and the difficulties the present
evaluators have had in obtaining authoritative and internally consistent statistics generally on
money laundering cases and confiscations and the low level of reporting from DNFBP, it is
strongly advised that a national mechanism is also created which reviews the effectiveness of
AML/CFT policies and which begins to prepare some agreed performance indicators for the
system as a whole, so the main AML/CFT players can assess domestically the level of AML/CFT
performance and collectively address areas where improvements are necessary.
927. The Czech authorities should also establish bilateral or multilateral mechanisms of consultation
between competent authorities and between these and the private sector.
6.1.3.
Rating
R.31
LC
•
•
There are no formal mechanisms in place for regular domestic AML/CFT
operational coordination;
There is no regular review of the effectiveness of the AML/CFT system at
the policy level.
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6.2
International co-operation – Conventions (R.35 and SR.I)
6.2.1.
928. Several Conventions (e.g. the Palermo Convention and protocols thereto and the Merida
Convention) are not ratified by the Czech Republic as they contain provisions on corporate
criminal liability on mutual legal assistance in criminal proceedings against legal entities. There is
no corporate criminal liability in the Czech legal system.
929. The evaluators were informed that in 2004 a draft for introducing criminal liability for legal
entities was produced. It was finally rejected in Parliament, but the intention of introducing this
kind of liability persists in the agenda of the Czech Government and a legal proposal for
introducing it is currently being carried out. The external comment procedure has recently finished
and next September it is anticipated to go to the Parliament to be discussed.
930. On the other hand the sensible attitude of the Czech authorities that they have opted not to ratify
any Convention that cannot be fully implemented has to be commended.
Special Recommendation I (rated PC in the 3rd round MER)
931. The respective UN Special resolutions are implemented in the EU within the Council Regulation
(EC) No 881/2002 of 27 May 2002 imposing certain specific restrictive measures directed against
certain persons and entities associated with Osama bin Laden, the Al-Qaida network and the
Taliban, and repealing Council Regulation (EC) No 467/2001 prohibiting the export of certain
goods and services to Afghanistan, strengthening the flight ban and extending the freeze of funds
and other financial resources in respect of the Taliban of Afghanistan implementing the
commitments under UN Security Council resolution 1267 (1999).
932. Pursuant to S/RES/1373(2001) the European Union adopted Council Common Position
No. 2001/930/CFSP of 27 December 2001 on combating terrorism; Council Common Position
No. 2001/931/CFSP of 27 December 2001 on the application of specific measures to combat
terrorism; Council Regulation (EC) No 2580/2001 of 27 December 2001 on specific restrictive
measures directed against certain persons and entities with a view to combating terrorism; and
Council Decision No. 2005/671/JHA of 20 September 2005 on the exchange of information and
co-operation concerning terrorist offences (as amended).
933. These provisions are stated in the referred European regulation and are directly applicable and
binding for all member states of the EU (including the Czech Republic), and no further national
implementation is required.
934. Nevertheless, as mentioned in the analysis of SR.II, related to the criminalisation of financing of
terrorism, certain insufficiencies still have not been covered. Therefore, at the time of the visit, the
TF offence in CC 311(2) was enlarged so as to encompass those who support an individual terrorist
or a member of a terrorist organisation. Although the criminalisation of TF is not established in a
sole Section of CC, most of the requirements set forth in Article 2 of the terrorist financing
Convention, according to the Czech authorities, are met by the general principles of the Penal
legislation.
935. CC article 311 (2) referring to the terrorism offence states: “Equally shall be sentenced who
threatens with the conduct mentioned in para (1), or who supports such conduct, a terrorist or any
member of a terrorist organisation financially, materially or in another way.” This wording does
179
not comply with SR.II requirements, in the same sense that it did not at the time of the 3rd round
evaluation.
936. Other shortcomings detected in the 3rd round MER have been solved in this period. The legal and
practical obstacles encountered in the 3rd round assessment report, to freeze ex officio accounts and
more generally assets held by persons and organisations appearing on the UN and EU lists have
been solved to a great extent with the implementation of act No. 69/2006 Coll., on Carrying Out of
International Sanctions and the correspondent regulation of the Government that develops it.
•
•
281/2006on Details Concerning Fulfilment of Reporting Duty, according to the Act
No. 69/2006, on Carrying Out of International Sanctions
210/2008 Regulation of the Government of the Czech Republic Implementing Special
Measures for Combating Terrorism.
937. According to the law on international sanctions, the FAU is the responsible state authority for the
implementation of freezing and seizing. Supervision and oversight of the compliance of the law’s
requirements will be performed in the same manner as prescribed in the AML/CFT Law. Financial
sanctions are specified in Section 5(2) of the referred Act. The crime of breaching of international
sanctions is specified in Section 410 of the Czech Penal Code; the crime of terrorism financing is
specified in Section 311(2) of the Czech Penal Code.
938. On the preventive side, the new AML/CFT Law, as previously described, provides for the
obligation to freeze funds involved in suspicious transactions in money laundering and financing of
terrorism and states clearly the procedures that have to be followed by the obliged entities.
939. According to Section 20 paragraph 1 of the Act “Should there be a danger that an immediate
execution of a transaction would hamper or substantially impede securing of proceeds of crime or
money intended for financing of terrorism, the obliged entity may execute the customer’s
transaction no earlier than 24 hours after the Ministry had received the suspicious transaction
report”.
940. Furthermore, Section 20 paragraph 3 established that “Should there be a threat under
paragraph 1 and the investigation of such suspicious transaction requires a longer period of time,
the Ministry shall decide:
a) to extend the period of suspension of the customer’s transaction for no more than 72 hours
after having received the suspicious transaction report, or
b) to suspend the customer’s transaction or to freeze the assets in such transaction for 72 hours
in the obliged entity where the assets are located”.
941. When the Ministry does not inform the obliged entity about having filed a criminal complaint, the
obliged entity shall make the transaction within 3 calendar days following the filing of the criminal
complaint. The obliged entity shall perform the transaction unless the law enforcement bodies have
decided to seize such transaction (paragraph 7).
942. On the issue of the provisional measures and confiscation, the evaluators noted some promising
signs of a growing awareness of the representatives of LEA and prosecution of the importance of
financial investigations. Provisional measures are said to be taken quite regularly, and, in urgent
cases related to laundering offences, with some helpful assistance from the FAU as to asset
freezing.
943. The legislation and the guidance provided by the FAU in the framework of the contacts
maintained with the obliged entities seems to have resulted in a clear awareness of the
180
professionals as to the necessity of checking the international sanction lists which are binding on
the Czech Republic, as well as familiarity with the procedure that has to be carried out in the case
that a transaction with these features appears.
944. The FAU has established an interagency working group “International Sanctions Interagency
Group” made up of representatives of the FAU and of all other competent state bodies. The group
defines the responsibilities of the different authorities as to the exercise of international sanctions,
methodology, measures, decisions and legislation in this field.
945. According to the statistics provided by the authorities in the last three years there have not been
any funds related to the financing of terrorism seized or frozen.
946. The Czech Republic has signed and ratified the Council of Europe Convention on Laundering,
Search, Seizure and Confiscation of the Proceeds from Crime (Strasbourg, 1990) which entered
into force for the Czech Republic on 1 March 1997 (it has been ratified); it is fully implemented.
6.2.2.
947. The Palermo Convention needs to be ratified and the criminalisation of financing or terrorism has
to include the broader language of the FATF Recommendations as well as the FT Convention,
criminalising not only any kind of support to terrorist acts, persons or organisations, but the mere
collection of funds with the intention or the prevision to be used for supporting these activities or
persons, regardless of whether a terrorist offence has been committed.
6.2.3.
Compliance with Recommendation 35 and Special Recommendation I
Rating
R.35
PC
SR.I
LC
• The Palermo Convention is not ratified due the lack of criminal, civil or
administrative liability of legal entities;
• The criminalisation still need to be brought in line with the
international requirements prescribed by the relevant Conventions
already ratified by the Czech Republic (the Vienna Convention and the
Terrorist Financing Convention) particularly as regards to:
- the conversion and transfer as well as the possession of property;
- and all aspects of concealment and disguise need to be explicitly
provided (R.1);
- the collection of funds, as one of the core activities within the
concept of TF is not criminalised;
- there is still no explicit coverage of direct or indirect collection of
funds/usage in full or in part (SR II).
• The conspiracy to commit all types of money laundering is not covered
by criminalisation (R.1).
• The Czech Republic has not fully implemented Article 2(1) in
connection with Article 2(3) of the TF Convention which criminalises
not only of the provision of funds for terrorist acts but also of the mere
collection of funds with the intention to.... used or in the knowledge
that they are to be used, in full or in part, in order to carry out terrorist
acts (as that term is defined in the said Article of the Convention) –
regardless of whether an actual terrorist offence is carried out.
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6.3
Mutual legal assistance (R.36 and SR.V)
6.3.1. Description and analysis
948. The legal framework for international judicial co-operation in criminal matters has hardly,
if at all, changed since the 3rd round MONEYVAL evaluation. Mutual assistance can be provided
upon a treaty basis, such as the 1959 European Convention on Mutual Assistance in Criminal
Matters or the 1990 Strasbourg Convention (the 2005 Warsaw Convention has not yet been ratified
by the Czech Republic) or, in EU relations, the 2000 Convention on Mutual Assistance in Criminal
Matters between the Member States of the EU and also on a reciprocity basis (Art. 376 CPC).
949. As to the latter, the mutual legal assistance mechanisms are still regulated within Chapter XXV
of the CPC (Art. 375 to 460zp). This Chapter deals with all aspects of international legal cooperation including, among others, extradition from and to another country (Part 2), surrender of
persons between EU member states under the European Arrest Warrant (Part 3), transfer of
criminal proceedings (Part 6), enforcement of foreign verdicts (Part 7) or recognition and
enforcement of orders between EU member states concerning freezing property or evidence (Part
8) financial penalties (Part 9) and confiscation orders (Part 10). The provisions that specifically
govern mutual legal assistance can be found in Part 5 of Chapter XXV (Art. 425 to 446) which are
to be applied according to the fundamental principles and general rules of international legal cooperation set out in Part 1 (Art. 375 to 382). As discussed in the previous report, Article 10 of the
Constitution prescribes that the international treaties ratified by the Czech Republic are part of
domestic legislation and since they prevail in case of any divergence, the provisions of
Chapter XXV Part 5 of CPC shall only be applied if, in relation to a specific foreign country, the
Czech Republic is not bound by such a treaty.
950. The evaluators learnt that a new law on international legal assistance in criminal matters was
under preparation at the time of the on-site visit. The law, which is to be adopted in 2011 will not
bring any substantial amendment to the legislation that can currently be found in Chapter XXV –
furthermore, it will consist of the contents of the current Chapter XXV. As explained onsite, the
EU-related amendments and completions (see Parts 3, 8, 9 and 10 above) had made this Chapter so
enormously large that it can hardly be contained within the traditional structure of the Criminal
Procedure Code (according to the domestic interlocutors, Chapter XXV makes up almost one
quarter of the entire Code alone). As a solution, the whole chapter will be removed and re-adopted
as a separate new law.
951. The previous evaluation team provided a thorough description and analysis of all the provisions
mentioned above and, since the evaluators were not informed of any amendment to these articles,
all their findings and conclusions remained valid and need no reiteration. Consequently, the
evaluators acknowledge that the Czech Republic is able to co-operate to a large extent with foreign
counterparts in those areas which are relevant for AML/CFT purposes. Criterion 36.1 can therefore
be generally considered as met, which also refers to sub-criterion 36.1(f) in respect to which the
deficiencies of the domestic confiscation and provisional measures regime, as they were mentioned
in the 3rd round MER (concerning real estate, other property value or substitute value) have since
been largely remedied so as not to limit the availability of the respective measures any longer.
952. Execution of letters rogatory is subject to conditions set by the respective international treaty
and/or by the relevant provisions of Chapter XXV CPC. That is, all foreign requests are executed
under the same conditions that apply in domestic criminal proceedings and legal assistance can
only be refused if the request does not meet the requirements determined by an international treaty
or the execution would be contrary to the Constitution of the Czech Republic or a regulation of the
Czech legislation which must be maintained without exceptions, or which could cause damage to
182
another significant protected interest of the Czech Republic (Art. 377 CPC). Neither of these can
be considered an unreasonable, disproportionate or unduly restrictive condition that would hinder
the mutual legal assistance and therefore Criterion 36.2 is met.
953. The same goes for Criteria 36.4 and 36.5 as no restriction applies, as at the time of the previous
evaluation, to letters rogatory concerning fiscal offences as well as secrecy or confidentiality
requirements (except for the lawyers, where a duty of confidentiality pursuant to the Law on
Advocacy applies as provided by Art. 8 CPC). The powers of competent authorities required under
R.28 are undoubtedly available for use in response to a request for mutual legal assistance,
provided the request complies with conditions set by a relevant international treaty and/or the CPC.
954. In summing up, the evaluators share the opinion of the previous team that legal conditions and
practices seem to be largely in line with the requirements of R.36. Furthermore, the situation has
improved in some of the problematic areas mentioned by the 3rd round MER. That is, the
evaluators no longer consider the Czech legal framework on seizure and confiscation being a
potential obstacle to co-operate in an effective manner with foreign counterparts, as a result of the
amendments that enlarged the scope of this regime to encompass real estate or substitute value.
955. As for the other main problematic issue, however, the shortage of staff in both the Ministry of
Justice and the Prosecution has not yet adequately been resolved. Swift and smooth processing of
international co-operation was, at the time of the 3rd round visit, hindered or at least threatened by
the low number of lawyers working in the respective units of the said authorities and the 4th round
evaluators came across almost identical figures in this respect.
956. The evaluators understood that in the pre-trial phase of the criminal proceedings, it is the High
Public Prosecutor’s Office which is competent for mutual legal assistance issues unless the direct
contact of lower level prosecutorial bodies with their foreign counterparts is allowed by an
international treaty. The Supreme Public Prosecutor’s Office is also involved in international cooperation. When the bill of indictment is submitted to the court, mutual legal assistance is in the
competence of the Ministry of Justice. The figures related to the staffing situation in these
authorities were significantly similar to the previous ones. For example, the Supreme Public
Prosecutor’s Office had allocated 9 prosecutors to this task at the time of the 3rd round visit, which
number had been reduced to 8 by the time of the current visit (out of which 2 are delegated to
Eurojust). In the Ministry of Justice, the unit dealing with international legal co-operation had
comprised 13 staff at the time of the previous visit and this number has not changed.
957. Execution of letters rogatory is supervised by central authorities, namely the Ministry of Justice
and the Supreme Public Prosecutor’s Office, except for cases of direct communication between
Czech and foreign judicial authorities. Both authorities provide guidance to the bodies directly
involved in executing letters rogatory. In the case of the Prosecution Service, it is the Supreme
Public Prosecutor’s Office that issues internal instructions to subordinated (regional/district)
Prosecutors’ offices. These instructions are of a binding nature and specify the requirements on
how to draft a letter rogatory. In addition, whenever such a request is sent abroad directly, a copy
thereof must be sent to the High Public Prosecutor’s Office for information, by which the superior
body can supervise the conformity of the letters rogatory nationwide. In relation to courts, the
Ministry of Justice has no right to issue any binding instruction but provides guidance documents
to assist judges in their participation in international legal co-operation. Certainly, courts may also
enter into direct communication and co-operation with foreign counterparts if allowed by a treaty.
Furthermore, the Supreme Public Prosecutor’s Office has the power to appoint simply one
prosecutor’s office for execution of a MLA request for cases where evidence should be gathered in
more districts or regions and a full coordination is necessary (Art. 431 para 3 CPC).
183
958. Direct co-operation of judicial authorities is possible provided it is based upon an international or
bilateral treaty. On the basis of various treaties, direct contact has already been established with all
neighbouring countries, then with all other EU Member States (including all the neighbours
mentioned above) and negotiations are underway to establish direct co-operation with Ukraine.
The domestic interlocutors claimed that a large proportion of international legal co-operation
(including MLA) takes place in relation to neighbouring countries (no exact figures were provided
though) and both the prosecutors and the representatives of the Ministry of Justice would prefer
more room for direct contact in the MLA regime.
959. When asked about clear and efficient processes for the execution of MLA requests in a timely
way and without undue delays (Criterion 36.3), the Czech authorities advised that the CPC did not
provide any specific time limits for the execution. Instead, the general time limits were said to be
dependent on the content of the specific request, with more time needed in case of obtaining
banking information (especially if searching for somebody’s bank account without knowing its
number). Domestic interlocutors disclosed that execution of a letter rogatory may, in exceptional
cases, take a year or even more, though in the majority of the cases the MLA can be provided in a
couple of months and the prosecutors the team met did emphasise that both the prosecutors and the
law enforcement authorities are usually active in pursuing the timely execution of letters rogatory.
Reference was made, for example, to the involvement of the FAU and its powers to suspend a
transaction in the execution of requests concerning the freezing of bank accounts (as discussed
more in details in relation to R.3). In addition, even if the domestic procedural law does not set any
deadline in this respect, the authorities executing a letter rogatory should always take into account,
to the fullest extent possible, all procedural deadlines specified by the requesting foreign authority.
960. The interpretation of reciprocity and dual criminality was not reported to pose particular
problems (as was illustrated with concrete examples in the 3rd round MER). The domestic
authorities confirmed that dual criminality is interpreted quite broadly, focusing on the elements of
the foreign offence rather than its designation or classification. Less intrusive measures are said not
to be subject to the condition of dual criminality.
961. Notwithstanding this, during the on-site visit the evaluators were told that one of the common
grounds for refusal of MLA is lack of dual criminality, though refusal on this ground mostly takes
place if coercive measures (search, seizure etc.) are requested. As it was explained in the latter
respect, all forms of confiscation in the Czech CC are considered as punishment and, therefore, no
confiscation could be applicable as a legal consequence for a foreign criminal act that would not be
considered a criminal offence in the Czech Republic because it would contravene the nulla poena
sine lege principle. For the same reason, the Czech Republic does not provide legal assistance to
any provisional measures (seizure, freezing) that would lead to a subsequent confiscation in
relation to such an offence.
962. The shortcomings and imperfections of the various offences by which money laundering and
terrorist financing are criminalised in the Czech CC, as discussed in more detail above in relation
to R.1, R.2 and SR.II, may also negatively impact mutual legal assistance based on dual
criminality. The same goes, to some extent, to foreign criminal cases in which legal entities are
prosecuted. As was explained by the prosecutors the team met, in such cases the foreign request
should be executed normally, provided that dual criminality applies in case of coercive measures,
with the sole exception that seizure or freezing from the respective legal entity would not be
allowed.
963. The provisions described above apply equally to the fight against terrorism and financing of
terrorism. It should be noted, however, that the deficiencies described under Special
Recommendation II impact on the ability of the Czech Republic to provide mutual legal assistance
due to the precondition of dual criminality.
184
964. Both the Ministry of Justice and the Supreme Public Prosecutor’s Office keep statistics on
various aspects on international co-operation in criminal matters, broken down into total number of
cases per year as follows:
Table 31: Ministry of Justice
(including MLA occurring during court proceedings)
Procedure
2009
MLA requests to abroad
81
MLA requests from abroad
200
extraditions to abroad
32
extraditions from abroad
80
European arrest warrants to abroad
439
European arrest warrants from abroad
310
transfer of criminal proceedings to abroad
24
transfer of sentenced persons to abroad
99
transfer of sentenced persons from abroad
26
Table 32: Supreme Public Prosecutor’s Office
(including MLA occurring in the investigative
phase up to the court proceedings)
Procedure
MLA requests to abroad
MLA requests from abroad
transfer of criminal proceedings to abroad
transfer of criminal proceedings from abroad
2009
304
771
268
119
965. Unfortunately, the evaluators only received figures for the preceding year. In the case of the
Supreme Public Prosecutor’s Office this was not surprising as the prosecutors the team met on-site
disclosed that the said prosecutorial body had only been gathering and keeping statistics related to
letters rogatory for less than two years. As for the Ministry of Justice, however, the lack of earlier
data (for the period of 2005 to 2008) was rather disappointing, considering that the 3rd round MER
contained a very similar statistical table for four consecutive years (2000 to 2003) which made it
quite reasonable to expect that the Ministry have statistical information for the entire period.
However, as it was subsequently explained by Czech authorities, such statistics had not since been
kept by the Ministry of Justice.
966. There are some further shortcomings in the statistics above. Neither is broken down so as to
indicate how many of these cases were related to money laundering and/or terrorist financing, what
the average time requirement to handle a foreign request was in these cases, what proportion of the
requests were refused and on what grounds etc.; the lack of these indicators was already noted in
the previous report. In addition, the MEQ remarks that the table does not include all cases of direct
communication among Czech and foreign judicial authorities. This statement contradicts what was
told to the evaluation team onsite, namely that the copies of requests the regional and district
prosecutors offices had sent out directly, together form an appropriate basis not only for having an
overview of the performance of subordinate prosecutorial units but also for statistical purposes.
Without this data the above statistics cannot be considered reliable or comprehensive to any extent
and therefore yhe effectiveness of the system could not be established.
185
6.3.2. Recommendations and comments
967. The evaluators reiterate the recommendation made in the previous report according to which the
Czech Republic should ensure that the services dealing with legal assistance are adequately staffed
to deal with those issues. Otherwise, the staffing problems could be an obstacle to timely and
effective co-operation.
968. The Czech authorities (either or both of the central authorities) should maintain comprehensive
annual statistics on all mutual legal assistance and extradition requests - including requests relating
to freezing, seizing and confiscation - that are made or received, relating to ML, the predicate
offences and TF, including the nature of the request, whether it was granted or refused and the time
required to respond.
969. The Czech Republic should clarify whether the application of dual criminality may limit its
ability to provide assistance in certain situations, particularly in the context of identified
deficiencies with respect to the ML and TF offence as outlined under Recommendation 1 and
Special Recommendation II.
970. The evaluators recommend considering the introduction of clear time limits for the competent
authorities to evaluate and forward the MLA requests for execution.
6.3.3. Compliance with Recommendations 36 and Special Recommendation V
Rating
6.4
Summary of factors relevant to s.6.3 underlying overall rating
R.36
LC
• There are no formal timeframes which would enable to determine
whether requests are being dealt within a timely fashion,
constructively and effectively;
• The application of dual criminality may negatively impact the ability
to provide assistance due to shortcomings identified in respect to the
scope of the TF and ML offences;
• Effectiveness cannot be demonstrated due to the absence of reliable
and comprehensive statistics on MLA requests.
SR.V
LC
• as above in R.36
Other forms of International Co-operation (R.40 and SR.V)
Power to provide widest range of international cooperation
Law enforcement
971. According to Czech Authorities, law enforcement authorities cooperate on a daily basis with
foreign counterparts availing themselves of the Interpol channel.
186
972. The legal capability of the Czech Police Forces to exchange information with foreign
counterparts is prescribed in the section 80, para 1 of Act No. 273/2008. Additional provisions on
international cooperation are also provided in sections 89 and 90 of the said Act.
The FIU
973. International cooperation by the FIU is defined under section 33 of the AML/CFT Law, which
states that the Ministry (FAU) shall cooperate with counterparts as well as international
organisations of the same country on the basis of an international treaty or on the principle of
reciprocity. FAU representatives have specified that “international treaty” refers to signature of
Memorandum of Understanding based on Egmont Group standard format.
974. The same article indicates that the Ministry (FAU) may cooperate with international
organisations under the condition that the information provided is used exclusively for the purpose
of the AML/CFT Law and is protected at least in the scope laid down in that Act. Concrete cases
for the application of such provision have not been reported to the evaluators.
975. The table below illustrates the number of requests sent abroad by FAU to foreign counterparts
and the requests received from foreign FIUs.
Requests sent
Request received
Table 33: Requests sent abroad by the FAU
2005
2006
2007
2008
69
77
66
59
130
128
133
165
2009
72
142
IQ2010
14
22
976. The Czech FIU has indicated that it is able to provide foreign counterparts with the same
information that it uses for its own investigations. This means that, on the basis of the content of a
foreign request, the FAU is able to obtain and provide information, not only related to information
contained in its own database, but also from the following subjects:
- Law enforcement authorities;
- Obliged entities (including banks);
- Tax authorities;
- Customs.
977. In processing a request for assistance, the FAU also exchanges information contained in the
following registers:
- registers of economic subjects (legal persons, individuals);
- register of population;
- land and property register;
- vehicle registers;
- NPOs register.
978. The information exchange with other FIUs appears to be good and completely satisfactory in
terms of quality of the answers provided by the Czech FIU. All the requests addressed to the Czech
FIU are answered. However, the time frame for responding to information requests range in
average from 1 months to 1,5 months, which could be improved in terms of prompt and effective
assistance.
187
979. On the time frame matter, the Czech FIU has indicated that when the request is urgent, the FAU
is able to provide information in one working day, except for complex cases or when the request
for assistance requires the need to obtain and elaborate information from the obliged entities.
980. As mentioned above, for the Financial Analytical Unit, an MOU is not a precondition of
international information exchange with its foreign counterparts. Nevertheless, as some countries
require MoUs for information exchange, the FAU has signed 24 protocols with foreign FIUs.
981. The exchange of information with FIUs is carried out in a secure way, mostly via Egmont Secure
Web or FIU.NET.
Supervision Authorities
982. When performing its tasks, the Czech National Bank shall co-operate with the central banks of
other countries, with the authorities supervising the financial markets of other countries, and with
international financial organisations and international organisations engaged in the supervision of
banks, electronic money institutions and financial institutions, as stated in Art. 2 (3) Act 6/1993
Coll. on CNB.
983. According to the Act on Banks 21/1992, information acquired in the context of exercising
banking supervision may be disclosed to European Union bodies where necessary to meet the
obligations of international treaties.
984. Even if the cooperation and information exchange is not directly stipulated in the Act on Banks,
indirectly it is understood that disclosure of information acquired in the context of exercising
banking supervision to authorities responsible for supervising banks, financial institutions or
financial markets in another state, shall not be deemed a breach of the confidentiality obligations.
985. Information acquired in the context of performing banking supervision may also be disclosed to
international organisations operating in the area of combating criminal activities and also to law
enforcement of foreign countries to allow them to fulfil their functions.
Effectiveness and efficiency (R.40 and SR.V)
986. The great effort that the Czech Government has carried out promoting the international
cooperation has to be commended. The investigative powers and techniques of the law
enforcement authorities, the legal empowerment, and above all the proactive attitude of the
competent authorities in assisting counterparts, have led to important results for the countries
involved.
987. The responses received to MONEYVAL’s standard enquiry on International Cooperation
received extremely positive response with no indications of shortcoming in cooperation on a timely
basis.
988. The statistics elaborated by FAU show a good level of cooperation of Czech FIU (FAU),
however, it would be appropriate for it to collect more detailed statistics, which consider, for
instance, the average time and quality of responses.
989. Efficiency and effectiveness on international cooperation for Supervisory authorities and Police
Forces, however some police operations have been describes during the on site visit, is difficult to
assess due to the lack of statistics.
188
6.4.2.
990. The administrative cooperation provided by the FAU seems to be exhaustive and accurate. In
urgent cases, FAU has declared that it is able to provide assistance in a few days, on average.
During the first quarter of 2010 FAU has provided assistance generally in 1 month, in line with the
Egmont Group standard.
991. With regard to Police Forces and supervisory authorities (mainly CNB) cooperation with
respective counterparts, the evaluators were not provided with statistics, thus it is difficult to
evaluate the effectiveness of such exchange of information.
992. For this reason, Police Forces and supervisory authorities should establish a mechanism for
collecting data and providing statistics on international cooperation.
993. FAU should develop a much more detailed process and procedures to keep the information
collected on requested cases.
994. The information collected by the statistics of all the administrative and Law enforcement
authorities would better support the Czech authorities in the development of the AML/CFT
national strategy and risk assessment.
6.4.3.
Compliance with Recommendations 40 and Special Recommendation V
Rating
R.40 - SR.V
LC
•
•
There are no mechanisms in place for Police and supervisory
authorities for collecting data and providing statistics on
international cooperation;
FAU should develop a much more detailed process and procedures
to keep the information collected on requested cases.
189
7.
OTHER ISSUES
7.1
Resources (R.30) and Statistics (R.32)
FIU
995. The Czech FIU has three divisions: the International Co-operation and Legal Division
(international information exchange, international sanctions, AML/CFT legislation), the Analytical
Division (analysis of STRs) with an IT Subdivision and the Supervisory Division (supervision on
obliged persons).
996. The FIU staff members are 28, employed by the Ministry of Finance. The Czech authorities have
also indicated that the FAU staff (except support staff) hold university degrees in law or economics
as follows:
• International Co-operation and Legal Division: 3 staff members hold a law degree, 1 has an
economics degree, 1 has a political science degree;
• Analytical Division: 11 staff members hold economics degrees, 1 a law degree and 3 are IT
specialists;
• Supervisory Division: all 4 staff members hold economics degrees.
997. The FIU appears to have adequate resources to fully perform the analysis of STRs functions.
Although, the recently created Supervisory Division might be understaffed for effective
supervision and monitoring. As indicated by the FIU representative, at the time of the on-site visit,
the FIU does not have adequate resources to perform sufficient on-site inspections for the whole of
the reporting entities (only 4 staff members were involved in the verification of the internal
procedures).
998. Training programs for FIU staff are deployed on a regular basis and seem to cover the relevant
area for combating ML and FT. The FIU staff is trained twice a year (3 days trainings) on issues
relating to STR analysis, new ML and TF trends and typologies, co-operation with other
supervisory bodies, co-operation with the police, criminal investigation, new legislative initiatives
(both national and international). The trainers are from the law enforcement authorities (police,
prosecutor’s offices), the Czech National Bank, and other supervisory agencies involved in
AML/CFT surveillance.
999. According to the Czech authorities, there have been several instances when the Minister has
modified the structure of the FAU on the basis of the FIU Director’s proposal, though the lack of a
clear statement in respect of the role and independence of the FIU remains a concern.
1000. With regard to the FIU’s Human Resources, the Czech authorities state that the Director of the
FAU applied for additional staff (nine analysts and one inspector). According to the procedure in
place, the Ministry authorises the recruitment but the Director of the FAU selects and appoints the
new staff.
1001. The FIU’s total financial budget is decided at ministerial level. Costs of the personnel are paid
by the Ministry of Finance, from the overall budget of the Ministry. While dedicated budget items,
mainly for IT purposes, are decided by the FIU.
190
LAW ENFORCEMENT
1002. According to the internal procedures of the Police Forces, “Unit Combating Corruption and
Financial Crimes”, “Anti - Drug Unit” and “Organised Crime Unit” are entrusted with the
investigations of the most complex money-laundering cases, while money-laundering cases with a
lower level of complexity are investigated by the specialists in the regions.
1003. Czech Authorities informed the evaluators that these law enforcement units include around
210 specialists designated for “financial inquiries” and investigations of money laundering cases.
1004. These financial specialists carry out their activities in working teams according to the
provisions set forth in the Decree of Deputy Police President for Criminal Police and Investigation
Service No. 14/2009 “On Financial Inquiries”.
1005. From the time of the commencement of actions in criminal proceedings financial specialists are
required to seize proceeds generated by illegal activities according to the provisions set forth in
section 2 of that Decree. In order to properly perform the function assigned, financial analysts use
the ALPHONSE system, keeping traces of the actions taken and the results obtained.
1006. As regards the organisational chart of the Unit Combating Corruption and Financial Crimes,
this is organised in Departments and Regional Branches. The whole UCCFC is staffed with almost
400 police officers and 65 civil employees. The Anti Money Laundering Division of the UCCFC is
incorporated in the Department of Tax Fraud and Money Laundering and is staffed with 12 police
officers.
1007. As a consequence of the new organisational structure of the Police Forces, 22 specialists
(minimum length of service, 7 years and an university degree in a relevant field are required) for
“financial inquires” are deployed in all departments and regional branches of UCCFC.
1008. There are prescribed follow-up courses, which every specialist is required to attend including on
AML techniques. The evaluators were informed that the staff of the law enforcement authorities
and FIU have appropriate systems of regular training. The information on ML and FT methods,
techniques and trends is disseminated.
1009. However, there are no regular and interagency committees between competent authorities
dealing with methods, techniques and trends.
1010. The AML Division of the Police Force, which is the responsible unit for investigating FAU
disclosures, is not equipped with sufficient staff qualified in financial investigation. The lack of
education and training in tracing the funds in major proceeds-generating cases leading to financial
investigations for ML cases limits law enforcement capability.
PROSECUTION AUTHORITY
1011. On the issue of the provisional measures and confiscation, the evaluators noted some promising
signs of a growing awareness of the representatives of LEA and prosecution of the importance of
financial investigations. Provisional measures are said to be taken quite regularly, and, in urgent
cases related to laundering offences, with some helpful assistance from the FAU as to asset
freezing.
1012. Another problematic issue seems to be the shortage of staff in both the Ministry of Justice and
the Prosecution which has not yet been adequately resolved. Swift and smooth processing of
international co-operation was, at the time of the 3rd round visit, hindered or at least threatened by
191
the low number of lawyers working at the respective units of the said authorities and the 4th round
evaluators came across almost identical figures in this respect.
SUPERVISORY AUTHORITIES
1013. Within CNB, there are 30 staff members who carry out on-site inspections in the banking
sector, 3 of whom are AML/CFT experts. There are 50 staff members that carry out on-site
inspections in the non banking sector (insurance, securities market etc.), 5 of whom are AML/CFT
experts.
1014. The Supervisory Division of the FIU at the time of the onsite visit comprised a Head plus 3
staff members, as indicated above, whose main function was to carry out off-site inspection by
receiving and checking the internal procedures sent, according to the section 21(6) of the
AML/CFT Law by some, but not all, of the reporting entities.
1015. As few resources were involved in the AML/CFT supervisory activity by the CNB and by
FAU, the evaluators were not informed of any cooperation between the two authorities to properly
perform this function (such as, joint inspections or planned inspections)
DNFBP
knowledge across the sector.
1017. The figures and statistics provided to the evaluators seem to indicate that the DNFBP have
difficulties to assess properly the reporting requirements and detect suspicious transactions which
may be due to the lack of training for DNFBP in this respect.
1018. There was a general lack of awareness among representatives of DNFBP whom the evaluators
met. AML/CFT training programs must be put in place in order to raise awareness.
1019. There is no regular dialogue (including training) between public authorities and the NPO
entities on the subject of financing of terrorism.
1020. For a range of DNFPB (the real estate agents, accountants and trust and company service
providers), the FIU remains the sole monitoring and supervision authority under section 35 of the
AML/CFT, and the same comments as have been made above regarding financial institutions apply
to FIU supervisory resources.
1021. With regard to the investigation and prosecution of money laundering and financing of
terrorism the statistics provided were inadequate. It was a particular deficiency of these statistics
that neither of them gave more profound information on the characteristics of the underlying
criminal cases. More specifically, the following features could not be assessed due to a lack of
relevant statistical information:
- the number of police-generated money laundering cases as opposed to those based on STRs
- the underlying predicate offences (at least those occurring more frequently)
- proportion of self-laundering cases and those related to classic third-person money laundering
activity within the overall figures.
192
1022. Statistics on provisional measures and confiscations in money laundering cases were
incomplete, especially regarding the number of investigations in the last two years before the
onsite visit. There is a total lack of statistical data regarding the amount of proceeds confiscated.
1023. The Czech National Bank provided comprehensive statistics on off-site supervision and on site
visits.
1024. The FIU provided comprehensive statistics including amounts of postponed transactions,
number of STRs broken down by categories of reporting entities and beneficiaries of disseminated
cases.
1025. Both the Ministry of Justice and the Supreme Public Prosecutor’s Office keep statistics on
various aspects on international co-operation in criminal matters, broken down into total number of
cases. However, the lack of earlier data (for the period of 2005 to 2008) was rather disappointing.
In addition, the statistics are not broken down so as to indicate how many of these cases were
related to money laundering and/or terrorist financing, what the average time requirement to handle
foreign requests were in these cases, and what proportion of the requests were refused and on what
grounds.
1026. Overall, the absence of authoritative statistics to demonstrate effectiveness of implementation of
several of the important FATF Recommendations is a significant deficiency.
7.1.2.
Recommendation 30
1027. The FIU Supervisory Division should be augmented for effective supervision and monitoring
both on- and off-site;
1028. Specialised AML/CFT training should be provided for DNFBP;
1029. More resources dedicated to AML/CFT compliance issues should be allocated by the Czech
National Bank;
1030. The Czech authorities should strengthen the AML Division of the UCCFC in order to increase
the effectiveness of the notifications received by FAU and develop an inter-agency committee that
will develop trends and methods useful for the investigative bodies. (Recommendation to be
inserted also under 2.6.);
1031. More seminars on AML/CFT investigations, prosecutions and judgments would be welcome to
ensure that all key players are fully aware of the importance of financial investigation, confiscation
and autonomous ML. (Recommendation to be inserted under 2.6.).
Recommendation 32
1032. The Czech authorities should keep records on ML confiscations.
1033. Statistics on investigation and prosecution of money laundering and financing of terrorism
should contain more detailed information.
1034. The Czech authorities (either or both of the central authorities) should maintain comprehensive
annual statistics on all mutual legal assistance and extradition requests - including requests relating
to freezing, seizing and confiscation - that are made or received, relating to ML, the predicate
193
offences and TF, including the nature of the request, whether it was granted or refused and the time
required to respond.
1035. The Czech authorities should envisage a system for collecting information for providing
dedicated statistics to national authorities and international organisations for the implementation of
a Czech AML/CFT risk assessment strategy;
7.1.3. Compliance with Recommendations 30 and 32
R.30
R.32
Rating
Summary of factors relevant to s.3.10. underlying overall rating
LC
FIU
• The FIU does not have sufficient resources to perform sufficient on-site
inspections, supervision and monitoring.
LAW ENFORCEMENT AND PROSECUTION
• The lack of education and training in tracing the funds limits law
enforcement capability;
• Shortage of staff in both the Ministry of Justice and the Prosecution,
qualified in financial investigations.
• Czech National Bank AML/CFT resources are low for supervision;
• Due to the lack of training, DNFBP have difficulties to properly assess
the reporting requirements and detect suspicious transactions;
PC
•
Insufficient training and awareness concerning the FT risks in the NPO
sector by the sector itself and within the relevant public authorities with
•
The lack of statistics on confiscation of ML proceeds negatively affects
the system;
Lack of robust and accurate data, figures and any other relevant
information useful to assess the activity of the Police Forces (both in
term of quantity and quality of the workload);
Effectiveness of mutual legal assistance cannot be demonstrated due to
the absence of reliable and comprehensive statistics on MLA requests.
•
•
•
7.2
Also there are not mechanisms in place for Police and supervisory
authorities to collect data and provide statistics on international
cooperation.
Other Relevant AML/CFT Measures or Issues
N/A
7.3
General Framework for AML/CFT system (see also 1.1)
N/A
194
IV. TABLES
Table 1. Ratings of compliance with FATF recommendations
The rating of compliance vis-à-vis the FATF 40 + 9 Recommendations is made according to the four
levels of compliance mentioned in the AML/CFT assessment Methodology 2004 (Compliant (C),
Largely Compliant (LC), Partially Compliant (PC), Non-Compliant (NC)), or could, in exceptional
cases, be marked as not applicable (N/A).
The following table sets out the ratings of Compliance with FATF Recommendations which apply
to the Czech Republic. It includes ratings for FATF Recommendations from the 3rd round
evaluation report that were not considered during the 4th assessment visit. These ratings are set out
in italics and shaded.
Forty Recommendations
Rating
Summary of factors underlying rating19
Legal systems
1. Money laundering offence
PC
• The criminalisation mechanism still needs to be
brought in line with the international requirements
prescribed by the relevant Conventions particularly
as regards to:
o the conversion and transfer of property;
o the possession of property;
o and all aspects of concealment and disguise
need to be explicitly provided;
• Conspiracy to commit all types of money laundering
is not covered by criminalisation;
• There is insufficient evidence of effective
implementation.
19
2. Money laundering offence
Mental element and
corporate liability
PC
3. Confiscation and
provisional measures
PC
• No corporate criminal liability has been established;
• The sanctioning regime is not sufficiently dissuasive
and effective and therefore the level of punishment
needs to be increased.
• The confiscation of property that has been laundered
is not expressly addressed by law and in
autonomous ML cases the practical applicability of
the existing provisions is unclear;
• There is an effectiveness issue with regard to
confiscation;
• The lack of statistics on confiscation negatively
affects the system.
These factors are only required to be set out when the rating is less than Compliant.
195
Preventive measures
4. Secrecy laws consistent
with the Recommendations
5. Customer Due Diligence
C
PC
6. Politically Exposed
Persons
PC
7. Correspondent banking
LC
8. New technologies and non
face-to-face business
PC
• This Recommendation is fully implemented.
• Czech measures in relation to identification and
verification of the beneficial ownership are below
FATF standards;
• The identification and verification of beneficial
owners is not always determined;
• Silent partners are not registered and therefore
cannot be identified during the CDD/ECDD
process;
• Certain categories of low risk business can be
exempted from CDD and/or ECDD instead of
requiring simplified or reduced measures;
• Low risk customers/circumstances not subject to a
risk analysis to decide the criteria for determining
whether and when to grant exemption;
• Legal uncertainty in relation to the implementation
of Criteria 5.2 (e);
• The overall level of effectiveness appears limited in
the identification/customer due diligence process in
respect of beneficial ownership as well as with
regard to the verification process including that
related to safety deposit boxes. The required riskbased approach is not supplemented by adequate
guidance to enhance effectiveness.
• The regime do not cover certain types of PEPs
included in the Glossary of definitions in the
Methodology;
• No requirement to consider whether a beneficial
owner may also be a PEP;
• Lack of comprehension in some cases of what
constitutes a politically exposed person;
• Approval is not specified to be at the level of senior
management;
• Limited effectiveness and implementation.
• Some basic requirements are provided for in the
banking regulations, complemented by individual
initiatives guided by the banking association. The
banking regulation needs to better reflect the
various requirements of R.7 and the scope of
requirements need to be broadened beyond banks
(although the latter, which are most importantly
concerned are covered).
• No specific requirement in the AML/CFT Law
requiring financial institutions to have policies in
place or to take measures as may be needed to
prevent the misuse of technological developments in
MLFT;
• Consequently, there is no requirement for policies
196
and procedures in place;
• No
general
requirement
for
additional
documentation to verify the authenticity of the
primary identification;
• There was low perception of the threats that may
arise from the misuse of technological developments
in AML/CFT.
9. Third parties and
introducers
10. Record Keeping
N/A
11. Unusual transactions
PC
LC
• There is no requirement that the retention period for
maintaining records could be extended for a longer
period if requested to do so by the FIU in specific
cases and upon proper authority;
• There are no clear requirements in the Czech
primary and secondary legislation obliging
institutions to maintain records in such a way as to
permit the reconstruction of individual transactions
so as to provide evidence for prosecution of criminal
activity;
• There are no explicit requirements in the AML/CFT
Law to retain the identification data concerning
business correspondence for at least five years
following the termination of an account or business
relationship.
• There is no clear requirement for all financial
institutions to pay special attention to all complex,
unusual large transactions, or unusual pattern of
transactions, that have no apparent or visible
economic or lawful purpose;
• The requirement to retain information documents
for amounts in excess of €15,000 (Section 9 (1)) is
not mandatory;
• There is no enforceable requirement that the
background, purpose and findings of complex,
unusual and large transactions are set forth in
writing;
• There is no specific requirement to keep the
background and findings of complex, unusual and
large transactions available for competent
authorities and auditors for at least five years;
• Limited appreciation of such risk by a number of
interviewed institutions. There is some lack of
clarity within institutions on the terminology and
requirement in respect of complex, unusual large
197
20
21
12. DNFBP – R.5, R.6, R.8 –
R. 1120
PC
13. Suspicious transaction
reporting
LC
14. Protection & no tipping
off
LC
15. Internal controls,
compliance and audit
PC
16. DNFBP – R.13-R.15 and
R.2121
PC
17. Sanctions
PC
transactions as no guidance has been issued.
• The same concerns in the implementation of
Recommendations 5, 6, 8 and 10 apply equally to
DNFBP (see section 3.2 and 3.4 of the report);
• Lower level of awareness of requirements relating
to PEPs and CFT amongst DNFBP than in the
financial sector.
• The efficiency of the reporting requirement is
negatively affected by the listing of (suspicious
reporting) transactions prescribed by AML/CFT
Law (which are mainly banking operations).
• The protection does not extend explicitly to the
disclosure of information (although it covers the
suspension of transactions), beyond the obliged
entity, to its management and staff.
• There is no enforceable requirement that the
compliance officer should be an appointment at a
managerial level with extended scope of
responsibilities;
• Within the limited scope of responsibilities of the
contact person it is not evident that these should
have timely access to information;
• There is no requirement that the contact person is
required to filter STRs;
• There is no requirement that obliged entities should
make available the internal procedures to the
employees;
• There is no legal obligation on obliged entities
requiring them to put in place screening procedures
to ensure high standards when hiring employees;
• In respect of smaller obliged entities, compliance
(contact) persons are delegated to a statutory body
of the obliged entities.
• The categories of internet casinos, dealers in
precious metal and dealers in precious stones are not
explicitly covered by the AML/CFT Law;
• There is no specific guidance to assist DNFBP
detecting STRs;
• Low numbers of STRs received by DNFBP;
• The effectiveness of the system is negatively
influenced by the listing of suspicious transactions;
• Lack of formalised procedures issued by Czech
authorities to make the obliged entities aware of
circumstances under Recommendation 21.
• Administrative sanctions included within the
The review of Recommendation 12 has taken into account those Recommendations that are rated in this
report. In addition it has also taken into account the findings from the 3rd round report on Recommendations
9.
14.
198
AML/CFT Law are not proportionate and not
necessarily dissuasive, as the maximum financial
sanctions that can be applied are quite low;
• Except for violation of the obligation of
confidentiality, on which administrative fines may
be imposed on natural persons, all the other
administrative penalties can only be imposed on
legal obliged entities. Directors, managers and
employees are not directly sanctionable;
• No financial sanctions have been applied
(effectiveness issue).
18. Other forms of reporting
LC
19. Other DNFBP & secure
transaction techniques
C
20. Special attention for
higher risk countries
LC
21. Special attention for high
risk countries
PC
22. Foreign branches and
subsidiaries
LC
23. Regulation, supervision
and monitoring
PC
• Relations with shell banks need to address all
relevant financial institutions beyond the banks (e.g.
credit unions).No provisions covering criterion
18.3.
• Possible need to put certain DNFBP under the
control of financial supervisors, due to the type of
their activities; Reliance on cash is still high despite
existing initiatives; there is room for further
initiatives.
• Indirect requirements in existing decrees need
augmenting to fully ensure that all financial
institutions examine and keep written findings in
respect of transactions, with no apparent economic
or visible purpose, in the respective countries space
which
insufficiently
apply
the
FATF
Recommendations;
• The Czech system needs augmenting to ensure that
all appropriate countermeasures envisaged in the
FATF Recommendations can be instituted.
• There is no requirement to ensure that foreign
branches and subsidiaries observe AML/CFT
measures
consistent
with
the
FATF
Recommendations in general;
• No requirement to apply the higher standard where
requirements differ;
• Requirement to ensure observing AML/CFT
measures in respect of branches and subsidiaries is
limited to institutions located in “third countries”.
• Low number of annual inspection in relation to
AML/CFT especially in the banking sector;
• No clarity as to whether there is a cycle of
inspections which catches all financial obliged
entities at some point;
• A very light touch risk-based supervisory approach
is taken overall in respect of AML/CFT;
199
24. DNFBP – regulation,
supervision and
monitoring
PC
25. Guidelines and feedback
PC
Institutional and other measures
26. The FAU
LC
27. Law enforcement
authorities
28. Powers of competent
authorities
29. Supervisors
30. Resources, integrity and
training
PC
C
LC
LC
• The number of obliged entities where infringements
were identified as a result of on site inspection
appears to be low;
• CFT issues insufficiently addressed in supervision.
• Problematic cooperation between the FIU and the
professional chambers regarding AML/CFT
supervision;
• No authority performs inspections on some DNFPB
and others do not have exclusive inspection on
AML/CFT;
• No sanctions had been imposed so far;
• Poor understanding regarding financing of
terrorism.
• Insufficient guidelines on AML/CFT techniques and
methods;
• Insufficient sector specific guidelines;
• Not enough case specific feedback;
• The FIU provides general feedback, but the requests
for feedback as required by the FATF methodology
are not met in light of the strict implementation of
the Law.
• The independence and autonomy of the Ministry
(FAU) is potentially limited by the powers and
functions of the Ministry (and Ministers);
• The width of the reporting obligation potentially
leads to an over concentration on tax issues in FAU
work.
• Few successful police-generated ML investigations;
• Lack of coordinated actions among authorities
(Police Forces and Prosecutors);
• Qualified staff in financial investigation have not
yet obtained satisfactory results;
• Little evidence that ML is being tackled effectively
in respect of major proceeds-generating offences;
• Lack of robust and accurate data, figures and any
other relevant information useful to assess the
activity of the Police Forces (both in terms of
quantity and quality of the workload).
a. [insufficiencies related to FT are covered under
SR.III]
• No adequate powers of enforcement and sanctions
against directors or senior managers of financial
institutions for failure to comply with or implement
AML/CFT requirements;
• Unclear whether there is a power to sanction for
refusal to disclose information to a supervisor.
FIU
• Inadequate resources for FIU supervision and
monitoring;
200
31. National co-operation
LC
32. Statistics22
PC
33. Legal persons – beneficial
owners
PC
34. Legal
arrangements
–
beneficial owners
International Co-operation
N/A
35. Conventions
PC
22
LAW ENFORCEMENT AND PROSECUTION
• The lack of education and training in tracing the
funds limits law enforcement capability;
• Shortage of staff in both the Ministry of Justice and
the Prosecution, qualified in financial investigation;
• Czech National Bank AML/CFT resources are low
for supervision;
• Due to the lack of training, DNFBP have difficulties
to properly assess the reporting requirements and
detect suspicious transactions;
• Insufficient training and awareness concerning the
CFT risks in the NPO sector by the sector itself and
within the relevant public authorities with
• There are no formal mechanisms in place for regular
domestic AML/CFT operational coordination;
• There is no regular review of the effectiveness of
the AML/CFT system at the policy level.
• The lack of statistics on confiscation of ML
proceeds negatively affects the system;
• Lack of robust and accurate data, figures and any
other relevant information useful to assess the
activity of the Police Forces (both in term of
quantity and quality of the workload);
• Effectiveness of mutual legal assistance cannot be
demonstrated due to the absence of reliable and
comprehensive statistics on MLA requests;
• Also there are no mechanisms in place for Police
and supervisory authorities to collect data and
provide statistics on international cooperation.
• Despite the acceleration of the procedure, the
registration of business entities still does not ensure
an adequate level of reliability of information
registered;
• Transparency of ownership structure does not
provide more information on beneficial ownership;
• No particular counter-measures have been taken
against the issuance of freely transferable bearer
shares.
• The Palermo Convention is not ratified due the lack
38 and 39.
201
•
•
36. Mutual legal assistance
(MLA)
LC
•
•
•
37. Dual criminality
of criminal, civil or administrative liability of legal
entities;
The criminalisation mechanism still needs to be
brought in line with the international requirements
prescribed by the relevant Conventions already
ratified by the Czech Republic (the Vienna
Convention and the Terrorist Financing Convention)
particularly as regards to:
o the conversion and transfer as well as the
possession of property,
o and all aspects of concealment and disguise
need to be explicitly provided (R.1),
o the collection of funds, as one of the core
activities within the concept of TF is not
criminalised,
o there is still no explicit coverage of direct or
indirect collection of funds/usage in full or in
part (SR II);
Conspiracy to commit all types of money laundering
is not covered by criminalisation (R.1).
There are no formal procedures which would enable
to determine whether requests are being dealt with
timeously, constructively and effectively;
The application of dual criminality may negatively
impact the ability to provide assistance due to
shortcomings identified in respect of the scope of
the TF and ML offences;
Effectiveness cannot be demonstrated due to the
absence of reliable and comprehensive statistics on
MLA requests.
C
38. MLA on confiscation and
freezing
LC
see R.36:
Legal conditions and practices seem to be largely in
line with the requirements of R.36; this being said, the
ability to cooperate in a timely and effective manner
could be hindered occasionally by the Czech legal
framework on seizure and confiscation (which excludes
for instance indirect proceeds, value confiscation), and
shortage of staff (MoJ, prosecutors).
39. Extradition
LC
LC
Issue of staffing seen earlier.
40. Other forms of Cooperation
• There are no mechanisms in place for Police and
supervisory authorities for collecting data and
providing statistics on international cooperation;
• FAU should develop a much more detailed process
and procedures to keep the information collected on
requested cases.
202
Nine Special Recommendations
SR.I Ratification and
implementation of UN
instruments
LC
SR.II Criminalise terrorist
financing
PC
23
SR.III Freeze and confiscate
terrorist assets
LC
SR.IV Suspicious transaction
reporting
LC
SR.V International
co-operation23
LC
• The Czech Republic has not fully implemented
Article 2(1) in connection with Article 2(3) of the TF
Convention which criminalises not only the provision
of funds for terrorist acts but also the mere collection
of funds with the intention to be used or in the
knowledge that they are to be used, in full or in part,
in order to carry out terrorist acts (as that term is
defined in the said Article of the Convention) –
regardless of whether an actual terrorist offence is
carried out.
• The offence of terrorist attack does not adequately
cover the acts described in Art. 7 of the Convention
on the Physical Protection of Nuclear Material (1980)
and Art. 2(a-b) of the Protocol for the Suppression of
Unlawful Acts against the Safety of Fixed Platforms
located on the Continental Shelf (1988);
• The collection of funds, as one of the core activities
within the concept of terrorist financing under SR.II
is not adequately, if at all, criminalised;
• Apart from the above, different provisions that
criminalise FT are not adequately harmonised ;
• There is still no explicit coverage of direct or indirect
collection of funds/usage in full or in part;
• There is no explicit indication that the offence is
prosecutable without the funds being used or linked
to a specific terrorist act;
• There is no corporate criminal liability.
• It is unclear whether the freezing mechanism clearly
encompasses the whole concept of “funds and other
assets” as defined by the FATF Methodology;
• The national procedure provided by the IIS Act for
the purpose of unfreezing requests upon verification
that the person or entity is not a designated person
does not guarantee the timeliness of the process;
• There is no clear guidance to distinguish SR.III
obligations from SR.IV obligations;
• Concern that DNFBP are not always in the position to
identify persons on TF lists (effectiveness issue).
• The lack of guidance on TF indicators to assist the
financial institutions negatively affects the SR.IV
obligations.
As in R.36:
• There are no formal procedures which would enable
to determine whether requests are being dealt with
timeously, constructively and effectively;
The review of Special Recommendation V has taken into account those Recommendations that are rated in
this report. In addition it has also taken into account the findings from the 3rd round report on
Recommendations 37, 38 and 39.
203
SR.VI AML requirements for
money/value transfer
services
SR.VII Wire transfer rules
SR.VIII Non-profit
organisations
SR.IX Cross Border
Declaration &
Disclosure
PC
LC
PC
LC
• The application of dual criminality may negatively
impact the ability to provide assistance due to
shortcomings identified in respect of the scope of the
TF and ML offences;
• Effectiveness cannot be demonstrated due to the
absence of reliable and comprehensive statistics on
MLA requests.
As in R.40:
• There are no mechanisms in place for Police and
supervisory authorities for collecting data and
providing statistics on international cooperation;
• FAU should develop a much more detailed process
and procedures to keep the information collected on
requested cases.
• Effective implementation of SR.VI not demonstrated;
• Alleged informal remittance activities not fully
assessed.
• A reserve on effectiveness of implementation.
• Lack of a fully comprehensive review of domestic
NPOs in order to obtain a clear picture of all the legal
entities that perform as NPOs, especially ones of
potential high risk;
• Insufficient awareness raising campaigns in the NPO
sector, and obliged entities, regarding potentially
vulnerable NPOs;
• Lack of “know your beneficiary and associate” rules
for NPOs, excepting those who become obliged
entities under AML, in the hypothetical case of
accepting large cash payments;
• Insufficient targeted supervision or monitoring of
NPOs which control significant portions of the
financial resources of the sector and substantial shares
of the sector’s international activities;
• Insufficient training and awareness concerning the
CFT risks in the NPO sector by the sector itself and
within the relevant public authorities with
a. There are some minor shortcomings (reporting duty
for suspicions of ML and FT needs to be clearly
spelled out); the major insufficiency is the
effectiveness issue (low number of ML cases
generated by the Customs compared to the criminal
activity context of the Czech Republic);
b. Customs need to be made more aware of AML/CFT
issues as they rely a lot on the police as regards
information in this field;
c. Community market exception needs to be clarified
together with EU partners.
204
Table 2. Recommended action plan to improve the AML/CFT system
AML/CFT System
Recommended Action (listed in order of priority)
1. General
2. Legal System and Related
Institutional Measures
2.1 Criminalisation of Money
Laundering (R.1 and r.2)
•
•
•
•
•
•
•
2.2 Criminalisation of Terrorist
Financing (SR.II)
•
The Czech Republic should amend Art. 216 CC so as to
cover explicitly the various elements of the international
requirements on the concept of money laundering now
apparently missing from the definition (first and foremost:
the conversion and transfer of property, the possession of
property, the various specific aspects of concealment and
disguise and the explicit coverage of the two main
purposive elements required by the conventional
definitions) preferably by harmonising the money
laundering definitions of the administrative and criminal
substantive law;
The Czech Republic authorities should ensure, either by
legislation or by achieving relevant judicial practice, that
the money laundering offence(s) cover both direct and
indirect proceeds from crime;
The Czech authorities should provide for the
criminalisation of conspiracy to commit all types of money
laundering, preferably by prescribing explicitly in the CC
that preparation for the legalisation offence (which by
virtue of Art. 20 CC also comprises conspiracy) is also
punishable, as had already been formulated in the previous
draft of the Criminal Code;
The Czech authorities should consider increasing the
criminal sanctions applicable to the legalisation offence
and other ML-related offences;
The Czech authorities should provide for the criminal
liability of legal persons, including for ML;
The Czech authorities should further analyse the reasons
for the apparent discrepancy between the money
laundering phenomenon in the Czech Republic and the
type of legalisation or participation cases so far concluded
successfully, both in terms of differences in the underlying
predicate criminality and the typologies of the related
laundering activities, and take further appropriate
initiatives to counter this phenomenon.
More success in significant third party laundering cases
needs to be achieved.
The Czech Republic should introduce a stand-alone
provision on financing of terrorism to cover explicitly the
various elements of the international requirements in a
more consistent way harmonizing the offences in
Art. 311(2)b and Art. 361 CC.
205
•
•
•
•
•
2.3 Confiscation, freezing and
seizing of proceeds of crime (R.3)
•
•
Ensure that the offence of terrorist attack adequately covers
the acts described in Article 7 of the Convention on the
Physical Protection of Nuclear Material (1980) and the
Protocol for the Suppression of Unlawful Acts against the
Safety of Fixed Platforms located in the Continental Shelf
(1988).
Specifically, harmonise the wording and the contents of the
respective articles.
The Czech authorities should introduce the financing of
terrorism as a stand-alone offence that would be broad and
detailed enough to encompass all aspects of terrorist
financing, particularly
- to clearly cover the various elements required by SR.II,
and above all, the collection of funds by any means,
directly or indirectly, and their use in full or in part for
FT purposes;
- to provide explicitly that, in order to be criminally liable,
it is not necessary that funds were actually used to carry
out terrorist acts or be linked to a specific terrorist act;
- and, subject to the introduction of corporate liability, to
provide for the liability of legal persons for terrorist
financing.
The Czech authorities should eliminate the discrepancy
between the coverage of the preventive and criminal
legislation in respect of the criminal offence of terrorism
(Art. 312 CC) in the range of the offences, the financing of
which constitutes terrorist financing because this act is
definitely out of the scope of the offence in Art. 311(2)b.
The Czech authorities should clarify the definition of
“funds” being subject of terrorist financing, in line with the
definition provided by the UN Terrorist Financing
Convention.
The Czech Republic should provide that:
- confiscation applies in respect of all kinds of property
that has been laundered;
- the confiscation of property that is derived directly or
indirectly from the proceeds of crime; including
income, profits or other benefits from the proceeds of
crime;
- the substantially discretionary character of the
confiscation of proceeds and instrumentalities should
be limited; ideally, confiscation in major proceedsgenerating cases should be mandatory;
- Art. 78-79 CPC governing seizure of a thing clearly
provide for the immediate application of this measure
without any potential time gap in the process.
The Czech authorities should more efficiently exploit the
possibilities that the CPC provides for the immediate
securing of financial means of bank accounts and the
involvement of the FAU and the administrative freezing
mechanism should be reduced to extraordinary cases of
ultimate urgency;
206
•
•
•
2.4 Freezing of funds used for
terrorist financing (SR.III)
2.5 The Financial Intelligence Unit
and its functions (R.26)
•
•
•
•
•
The Czech authorities should establish and maintain
reliable and detailed statistics on the performance of the
entire confiscation regime analysing the reasons why
seizures, once they are taken more regularly and
successfully, fail to result in more confiscations;
The Czech authorities should reconsider introducing the
reversal of the burden of proof post-conviction for
confiscation purposes.
The Czech authorities should achieve more success in
major confiscation orders in serious proceeds-generating
cases.
The Czech Republic should seek greater harmony between
the domestic legislation and the EU regulations providing
(i) that all domestic law(s) applicable in the context of
SR.III clearly encompass the whole concept of “funds and
other assets” as defined by the FATF Methodology; (ii)
enhancing and guaranteeing timeliness in the national
procedure for the purpose of unfreezing upon verification
that the person or entity is not a designated person (iii) that
more guidance is required on SR.III obligations to
distinguish them from SR.IV reporting duties and (iv) that
DNFBP be in a better position to identify persons and
entities on FT lists.
The Czech Republic should introduce an explicit reference
to the FIU in the AML/CFT legislation as already
recommended in the 3rd MER;
The Czech authorities should strengthen the independence
and autonomy of the Ministry (FAU/FIU) by amending the
AML/CFT Law or issuing a decree to govern the main
aspects of the activities of the Ministry (FAU/FIU) (the
appointment and term of the Director and basis on which
he can be removed, recruitment and management of staff,
budget, organisation and security);
The FIU should consider extending the use of
“Moneyweb”;
The FIU should consider keeping records of the predicate
offences in FAU reports disseminated to law enforcement.
3. Preventive Measures –
Financial Institutions
3.1 Risk of money laundering or
terrorist financing
3.2 Customer due diligence,
including enhanced or reduced
measures (R.5 to R.8)
•
The Czech Republic should undertake a formal risk
assessment to identify all the areas of vulnerability to
money laundering and terrorist financing in the Czech
Republic.
Recommendation 5
• The Czech authorities should carry out a risk analysis to
decide the criteria for determining whether and when to
exempt the specified low risk customers/circumstances
within the appropriate circumstances of the Czech
Republic;
207
•
The Czech authorities should introduce preventive
measures to deter the potential opening of accounts/safe
boxes, etc. with fictitious names;
• The Czech authorities should require reasonable measures
be taken to verify beneficial ownership including those that
may be low risk to align with FATF standards;
• The Czech Republic should issue guidance to institutions
to flesh out the way obliged entities are expected to
implement their responsibilities stemming from the
legislation on a risk-based approach;
• The Czech authorities should issue guidance to the
financial institutions to ensure that the obligation to
undertake CDD measures when financial institution have
doubts about veracity or adequacy of previously obtained
customer identification data is fully understood. In this
respect, there is also legal uncertainty in meeting the
requirement under Recommendation 5.2(e);
• The Czech authorities should implement more effectively
the requirements for obliged entities always to determine
the natural person behind a beneficial owner;
• The Czech authorities should clarify to obliged entities
(through guidance) how to obtain satisfactory evidence of
the identity of beneficial owners, bearer shares holders and
silent partners and other similar cases. Ideally, the latter
two should be prohibited or verified through controlled
registration;
• The Czech authorities should review the requirements for
customer due diligence and enhanced due diligence to
include other measures as referred to in international
standards;
• The Czech authorities should emphasise the verification
process is not only for financial transactions but also for
other services such as the opening and usage of safety
boxes;
• The Czech authorities should review the identification
process in respect of low risk customers to one of reduced
or simplified customer due diligence instead of no
identification requirement;
• The Czech authorities should consider issuing a list of
non-cooperative countries as identified by the Czech
authorities.
Recommendation 6
• The Czech authorities should review the definition of PEPs
(i.e. replace “shall mean” to “shall include”) and include
senior politicians, senior government officials and
important political officials as set out in the definition in
the Glossary to the Methodology;
• The definition of PEPs should include beneficial owners;
• The Czech authorities should issue detailed guidelines to
obliged entities to flesh out the responsibilities and
obligations of obliged entities in respect of PEPs;
208
•
3.3 Financial institution secrecy or
confidentiality (R.4)
3.4 Record keeping and wire
transfer rules (R.10 & SR.VII)
3.5 Monitoring of Transactions
and Relationship Reporting (R.11
The Czech authorities should require that the approval for
establishing and continuing a business relationship with a
PEP is given by senior management rather than the direct
superior.
Recommendation 8
• The Czech Republic should introduce in the AML/CFT
Law a specific obligation addressing R.8, and introduce
guidance fleshing out the responsibilities to address the
specific risks associated with non face-to-face business
relationships or transactions when conducting ongoing due
diligence;
• The Czech authorities should require additional
identification documents to verify the authenticity of the
primary identification in all non face-to-face business.
• More awareness raising on the misuse of technological
developments required.
• The Czech authorities should establish and keep updated
the planned Central Register of Bank Accounts containing
basic data on clients and financial products available
through on-line requests;
• The FIU should finalise and keep updated a study on the
most effective ways for the authorities to obtain
information from financial institutions;
Recommendation 10
• The Czech Republic should clarify in law or regulation
that the retention period for maintaining records could be
for a longer period if requested, to do so by a domestic
competent authority in specific cases and upon proper
authority, including also information on natural person
behind a legal person;
• The Czech authorities should include specifically in the
law a requirement to retain business correspondence for at
least 5 years following the termination of an account on
business relationship;
• The Czech authorities should clarify that transaction
records should be maintained in such a way as to permit
the reconstruction of individual transactions so as to
provide evidence for prosecution of criminal activity;
• The Czech authorities should consider issuing guidelines
specifying retrieval methodologies applicable to paperbased maintenance of records in order to facilitate early
and orderly retrieval;
• The Czech authorities should issue guidance in respect of
cooperation between obliged entities in record keeping so
as ensuring that there are no gaps in such cases.
Special Recommendation VII
• The Czech authorities should issue guidelines to obliged
entities on the practical implementation of the EU
Regulation.
Recommendation 11
• The Czech Republic should specify directly in the
209
& R.21)
3.6 Suspicious transaction reports
and other reporting (R.13 &
SR.IV)
AML/CFT Law that obliged entities are required to pay
special attention to transactions that are complex, unusual
and large and also specifically requiring that these
provisions are applicable also to low risk clients;
• The Czech Republic should introduce enforceable
requirements that the findings of the examination of the
background and purpose of complex, unusual and large
transactions that have no apparent economic or lawful
purpose are set forth in writing and retained;
• The Czech authorities should issue guidance to give
examples of complex and unusual large transactions as
well as those which have an unusual pattern without a
seemingly apparent economic or lawful purpose.
Recommendation 21
• The Czech Institutions should carry out their own country
risk assessment without over reliance on official lists;
• The Czech authorities should issue specific guidance to
provide institutions with a list of measures that they can
apply in the event of identification of a risky country;
• Further guidance needed to augment existing decrees to
ensure all financial institutions examine and keep written
findings in respect of transactions with no apparent
economic or visible purpose in countries which
insufficiently apply the FATF Recommendations.
Recommendation 13
• The Czech Republic should harmonise along the legal
instruments the definition of the “financing of terrorism”
with the wordings of the criteria 13.2 and SRIV.1;
• The Czech Republic should amend:
- the law in order to avoid the listing of (suspicious
reporting) transactions or, at least, issue specific
guidelines to all obliged entities (including financial
institutions) on the reporting requirements in the light of
FATF and MONEYVAL Typologies;
- amend/issue guidance on the identification of suspicious
transactions for all obliged entities.
• The Czech authorities should verify the adequacy of, and
adapt if necessary, the reporting requirement of suspicions
related to the financing of terrorism;
• The Czech authorities should introduce appropriate
guidance on the reporting requirements that goes beyond
the “designated persons” (under UNSCRs) (in order to
avoid any misunderstanding between the two different
reporting obligations).
Special Recommendation IV
• The Czech authorities should issue, or update, regulations
and/or guidelines on how to discover and/or determine the
circumstances which lead to a suspicion of financing of
terrorism and/or that funds are linked or related, or to be
used for terrorism, terrorist act, or by terrorist organisations
or by those who finance terrorism. The FATF and other
FSRB (including MONEYVAL) documents containing
210
cases study, typologies and indicators on TF should be
used.
Recommendation
15
3.7 Internal controls, compliance,
audit and Foreign Branches(R.15 • The Czech Republic should amend the AML/CFT Law or
CNB Decree in order to require that the contact officer
& R.22)
should be appointed at managerial level with the relevant
responsibilities, which is currently limited in scope to be
the contact person with the FIU;
• The Czech authorities should introduce legal requirements
ensuring that obliged entities screen prospective
employees to ensure high standards introducing different
obligations in respect of “compliance officers” (Contact
person) in small and larger obliged entities and standardise
requirements;
• The FIU should make an explicit reference requiring
obliged entities to make available the internal procedures
to its employees;
• The FIU should issue guidelines to specify what is
required and the necessary procedures for the contact
person to carry out his responsibilities effectively
describing the necessary control measures (including
required monitoring systems and provide greater guidance
on what is actually expected from a risk-based approach).
Recommendation 22
• The Czech authorities should extend the requirement in
Section 25(4) of the AML/CFT Law to the FATF
Recommendations in general (not only to recommendation
5 and 10);
• The Czech authorities should ensure the observance of
Czech AML/CFT measures in respect of their branches
and subsidiaries of institutions located in EU member
States or the European Economic Area;
• The Czech authorities should introduce a requirement that
where the minimum AML/CFT requirements of the home
and host countries differ, branches and subsidiaries in host
countries should be required to apply the higher standard,
to the extent that local (i.e. host country) laws and
regulations permit.
Recommendation 23
3.08 The supervisory and
• The CNB should establish a clearly articulated and realistic
oversight system - competent
risk based approach to the frequency of inspections;
authorities and SROs. Role,
•
The
inspection cycle should catch all financial entities at
functions, duties and powers
some point;
(including sanctions) (R.23, 29, 17
• The CNB should carry out more targeted AML/CFT
and 25)
inspections generally;
• The CNB should carry out targeted AML/CFT inspections
in the non-banking financial sector, particular foreign
exchange bureaus;
• The Czech authorities should provide more resources to the
FIU, particular manpower, to enable it to strengthen its
oversight and supervisory work, with power to step in and
211
3.09 Money or value transfer
services (SR.VI)
conduct on-site inspections if another supervisor fails to
perform, or inadequately performs its supervisory
functions in respect of AML/CFT provisions;
• The FIU should ensure targeted CFT controls are covered
in future in all financial sector inspections (including
awareness of and training on CFT issues, efforts to detect
FT related assets, awareness of international lists etc.);
• The FIU should issue further guidance documents on both
AML and CFT, including for financial supervisory staff.
Recommendation 17
• The Czech authorities should introduce direct sanctions for
directors, managers and employees;
• The Czech authorities should provide for a wider range of
sanctions (such as warnings, orders to comply with
instructions, special reporting, removal or restriction of
powers of directors, managers and officers or restrictions
of business activities);
• The Czech authorities should introduce sanctions in respect
of breaches for failure in carrying out properly the
identification process;
• The Czech authorities should review the administrative
fines to introduce a minimum amount (which is in itself
dissuasive);
• The Czech authorities should consider issuing dissuasive
financial sanctions in appropriate cases.
Recommendation 25(c. 25.1 [Financial institutions])
• The CNB and the FIU should include, in the guides of the
professional bodies, explanations of the requirements of
the Prohibition on Money Laundering Law (Act No.
253/2008) including a description of ML and FT
techniques and methods or any additional steps that the
obligated entities could take to ensure that their AML/CFT
measures are effective (as required pursuant to FATF
recommendation 25.1);
• the FIU Should give more feedback in relation to each STR
considering the feasibility of more routine case specific
feedback (particularly in relation to significant
developments in the case) to reporting entities once the
FIU has passed a case to the Law enforcement.
Recommendation 29
• The Czech authorities should ensure that there is a power
to sanction for refusal to disclose to a supervisor;
• The supervisors authority bodies should carry out more
targeted inspections.
Recommendation 30 (all supervisory authorities)
• The Czech National Bank should allocate more resources
dedicated to AML/CFT compliance issues, particularly
specialised AML/CFT training should be provided for
DNFBP.
• The Czech authorities should closely analyse the potential
risks in the MTV sector and coordinate with the CNB the
212
degree of oversight that is given to the MTV sector. The
extent of the informal remittance sector should be assessed
and the risks analysed.
4. Preventive Measures – NonFinancial Businesses and
Professions
4.1 Customer due diligence and
record-keeping (R.12)
4.2 Suspicious transaction
reporting (R.16)
4.3 Regulation, supervision and
monitoring (R.24-25)
•
The Czech authorities should raise the general awareness
of CDD measures by DNFBP by issuing specific guidance
for each sector as well as conducting outreach and training.
• The Czech authorities should specifically take steps to
raise awareness of and compliance with Recommendations
5, 6, 7, 8 and 10 in the DNFBP sector.
• The Czech authorities should ensure that the channels of
co-operation between the FIU and the professional
Chambers in the framework of the reporting obligation are
more formalised. Dealers in precious metals and stones
should be explicitly covered.
• More outreach to encourage greater reporting by DNFBP.
Recommendation 24
• The Czech authorities should put in place the authority to
monitor for AML/CFT purposes in respect of dealers in
precious metals and stones so that they are subject to
effective risk based monitoring;
• The FIU should conduct a survey on the size of the sector
dealing with precious metals and stones and its
vulnerability to ML/FT and develop a risk based
assessment for monitoring and ensuring their compliance
with requirements to combat ML and FT;
• The FIU should develop a clear risk based strategy for
effective monitoring of those other DNFBP that are not
covered by the arrangements with the professional bodies,
in particular real estate agents, trust and company service
providers (where not otherwise covered);
• The Czech authorities should assure continuing active
AML/CFT supervision and sanctioning in the casinos in
respect of AML/CFT risks;
• The FIU should introduce more formal cooperation
agreements with the professional chambers in order to
ensure a more coordinated and consistent level of
AML/CFT supervision of these professionals;
• The Czech authorities should introduce formal
cooperation agreements with the professional chambers
routinely in order to share supervision and sanctioning
results with the FIU in order to ensure a more coordinated
and consistent level of AML/CFT supervision of these
professionals (finding working arrangement on how to
apply Section 37(2) of the AML/CFT Law;
• The professional chambers should review their AML/CFT
strategy to ensure that it fulfils its obligations under the
AML/CFT Law;
The Professional Chambers should provide a CFT list to its
213
members and specific guidelines relating to the financing of
terrorism.
Recommendation 25 (c.25.1 [DNFBP])
• The guides of the professional bodies, the FIU and of the
CNB should include description of ML and FT techniques
and methods or any additional steps that the obligated
entities could have to take in order to ensure that their
AML/CFT measures are effective;
• The FIU shall introduciont sanctions for the failure of
reporting in the form established by the FAU;
• The FIU shall implement more case specific systems of
feedback (particularly in relation to significant
developments in the case) for the reporting entities once
the FIU has passed a case to Law enforcement.
5. Legal Persons and
Arrangements & Non-Profit
Organisations
5.1 Legal persons – Access to
beneficial ownership and control
information (R.33)
5.2 Non-profit organisations
(SR.VIII)
• Authorities should provide an adequate level of reliability
of information registered introducing transparency of
ownership structure and more information on the final
beneficial ownership.
• The Czech authorities should introduce specific countermeasures to avoid the issuance of freely transferable
bearer shares.
• The Czech authorities should:
- carry out a review of the possible misuses of NPOs
for criminal/ML/FT purposes, and as a result to
examine the needs for a more consistent legal
framework and centralised information, currently
available through 3 or 4 different databases. (as
already indicated recommended in the 3rd MER;
- establish requirements for NPOs in the registration
documents or in the forms for tax benefits to provide
the information recommended under the Interpretative
Note to SR.VIII;
- explicit and put in place the public authority
responsible for the registration, licensing and
monitoring of NPOs;
• The FIU should establish regular contacts with the NPOs
/NPOs supervisory Boards and establish specific
guidelines advising on the threat of misusing the NPOs for
terrorism financing as well as a regular dialogue between
public authorities and the NPO entities conducted on the
subject of financing of terrorism.
6. National and International
Co-operation
6.1 National Co-operation
• Formal mechanisms should be put in place for domestic
operational coordination;
• There needs to be a regular review of the effectiveness of
the AML/CFT system at the policy level which establishes
214
some performance indicators for the system as a whole
and establishes consistent data on results.
6.2 The Conventions and UN
Special Resolutions (R.35 & SR.I)
6.3 Mutual Legal Assistance (R.36
& SR.V)
6.4 Other Forms of Co-operation
(R.40 & SR.V)
• The Czech Republic should ratify the Palermo Convention
needs. The criminalisation of financing or terrorism has to
include the wording of the UN Security Council
resolutions and Conventions, criminalising not only any
kind of support to terrorist acts, persons or organisations,
but the mere collection of funds with the intention or the
prevision to be used for supporting these activities or
persons, regardless of whether a terrorist offence has been
committed.
• As recommended in the previous report, the Czech
authorities should take care that the services dealing with
legal assistance are adequately staffed;
• The Czech authorities (either or both of the central
authorities) should maintain comprehensive annual
statistics on all mutual legal assistance and extradition
requests - including requests relating to freezing, seizing
and confiscation - that are made or received, relating to
ML, the predicate offences and TF, including the nature of
the request, whether it was granted or refused and the time
required to respond;
• The Czech Republic should clarify whether the application
of dual criminality may limit its ability to provide
assistance in certain situations, particularly in the context
of identified deficiencies with respect to the ML and TF
offence as outlined under Recommendation 1 and Special
Recommendation II;
• The Czech authorities should introduce clear time-limits
for the competent authorities to evaluate and forward the
MLA requests for execution.
• The Czech authorities should introduce adequate statistics
in order to evaluate the effectiveness of exchange of
information on non judicial international cooperation;
• Police Forces and supervisory authorities should establish
a mechanism of collecting data a providing statistics on
non judicial international cooperation;
• FAU should develop a much more detailed process and
procedures to keep the information collected on requested
cases.
7. Other Issues
7.1 Resources and statistics (R. 30 Recommendation 30
• The FIU Supervisory Division should be reinforced for
& 32)
effective supervision and monitoring both on- and off-site;
• Specialised AML/CFT training should be provided for
DNFBP;
• More resources dedicated to AML/CFT compliance issues
should be allocated by the Czech National Bank;
• The Czech authorities should strengthen the AML Division
215
of the UCCFC in order to increase the effectiveness of the
notifications received by FAU and develop an inter-agency
committee that will develop trends and methods useful for
the investigative bodies. (Recommendation to be inserted
also under 2.6.);
• More seminars on AML/CFT investigations, prosecutions
and judgments would be welcome to ensure that all key
players are fully aware of the importance of financial
investigation, confiscation and autonomous ML.
(Recommendation to be inserted under 2.6.).
Recommendation 32
• The Czech authorities should keep records on ML
confiscations;
• Statistics on investigation and prosecution of money
laundering and financing of terrorism should contain more
detailed information;
• The Czech authorities (either or both of the central
authorities) should maintain comprehensive annual
statistics on all mutual legal assistance and extradition
requests - including requests relating to freezing, seizing
and confiscation - that are made or received, relating to
ML, the predicate offences and TF, including the nature of
the request, whether it was granted or refused and the time
required to respond;
• The Czech authorities should envisage a system for
collecting information for providing dedicated statistics to
national authorities and international organisations for the
implementation of a Czech AML/CFT risk assessment
strategy.
7.2 Other relevant AML/CFT
measures or issues
N/A
7.3 General framework –
structural issues
N/A
216
TABLE 3: AUTHORITIES,
NECESSARY)
RELEVANT
SECTIONS AND
PARAGRAPHS
-
RESPONSE
COUNTRY COMMENTS
-
217
TO
THE
EVALUATION
(IF
V. COMPLIANCE WITH THE 3RD EU AML/CFT DIRECTIVE
Czech Republic has been a member country of the European Union since 2004. It has
implemented Directive 2005/60/EC of the European Parliament and of the Council of
26 October 2005 on the prevention of the use of the financial system for the purpose of
money laundering and terrorist financing (hereinafter: “the Directive”) and the Commission
Directive 2006/70/EC of 1 August 2006 laying down implementing measures for Directive
2005/60/EC of the European Parliament and of the Council as regards the definition of
,politically exposed person, and the technical criteria for simplified customer due diligence
procedures and for exemption on grounds of a financial activity conducted on an occasional
or very limited basis.
The following sections describe the major differences between the Directive and the relevant FATF
40 Recommendations plus 9 Special Recommendations. Please complete the description and analysis
beneath and return to the Secretariat with the fully completed questionnaire. For relevant legal texts
from the EU legal standards see Appendix I.
1.
Art. 39 of the Directive
FATF R. 2 and 17
Key elements
Description
Analysis
Conclusion
Recommendations
Comments
Corporate Liability
Member States shall ensure that natural and legal persons covered by the
Directive can be held liable for infringements of the national provisions
adopted pursuant to this Directive.
Criminal liability for money laundering should extend to legal persons.
Where that is not possible (i.e. due to fundamental principles of domestic
law), civil or administrative liability should apply.
The Directive provides no exception for corporate liability and extends
it beyond the ML offence even to infringements which are based on
national provisions adopted pursuant to the Directive. What is the position
in your jurisdiction?
and The act on criminal liability of legal persons has been drafted and it
will be passed to the Parliament of the Czech Republic soon. The
Czech Republic applies administrative liability. The administrative
offences concerning money laundering are specified in Sections 43-54
of the AML Act. The penalties for legal persons can reach up to 50
million CZK (€2 million).
Criminal liability does not extend to legal persons.
and The Czech authorities stated that the provisions for extending criminal
liability will be discussed in the new Parliament. Concurrently, it
needs to be ensured that the AML/CFT Law will be amended to
extend criminal liability for money laundering to legal persons.
The Czech authorities informed that the AML/CFT Law will be
amended in connection with the act on criminal corporate liability:
Sections 44 (4), 45 (4), 46 (3), 47 (5), 48 (8), 49 (3) will be abolished
as administrative offences and replaced by the criminal offences of
legal persons in the new act on criminal corporate liability.
2.
FATF R. 5
Key elements
Anonymous accounts
Member States shall prohibit their credit and financial institutions
from keeping anonymous accounts or anonymous passbooks.
Financial institutions should not keep anonymous accounts or
accounts in obviously fictitious names.
Both prohibit anonymous accounts but allow numbered accounts.
218
Description
Analysis
Conclusion
Recommendations
Comments
The Directive allows accounts or passbooks on fictitious names
but always subject to full CDD measures. What is the position in your
jurisdiction regarding passbooks or accounts on fictitious names?
and The prohibition of anonymous accounts is specified in Section 709 of
the Czech Commercial Code (Act No. 513/1991 Coll.) and prohibition
of anonymous passbooks is specified in Sections 782, 786, 787 of the
Czech Civil Code (Act. No. 40/1964 Coll.).Furthermore an agreement
to establish an account, an agreement to make a deposit into a deposit
passbook or a deposit certificate; or an agreement to make any other type
of deposit are subject to identification according to the Section 7(2c) of
the AML Act.
Existing bearer passbooks were abolished by an amendment to Act No
40/1964. The Act on Banks (126/2002 Coll.) of 31 December 2002
established that the right of repayment of the balance of discharged
deposit claims becoming statute-barred by the end of 2012. According
to a 2002 amendment to the Act on Banks, only withdrawals are
possible.
and Anonymous accounts will become statute-barred as at end 2012.
3.
Art. 7 b) of the Directive
FATF R. 5
Key elements
Description
Analysis
Conclusion
Recommendations
Comments
Threshold (CDD)
The institutions and persons covered by the Directive shall apply CDD
measures when carrying out occasional transactions amounting to
€15 000 or more.
Financial institutions should undertake CDD measures when carrying
out occasional transactions above the applicable designated threshold.
Are transactions and linked transactions of €15 000 covered?
and According to the Section 7 paragraph 1 of the AML Act the obliged
entity shall, prior to a single transaction amounting to €1,000 or more
perform the customer due diligence process (according to the Art. 8
(1a) 3 AMLD).
According to the Section 9 of the AML Act the obliged entity shall,
prior to a single transaction amounting to €15,000 or more perform the
customer due diligence process (according to the Art. 8 (1b-d) 3
AMLD).
Operations which appear to be linked are defined in Section 54 (3) of
the AML Act: If a payment is divided into several installments, the
value of the transaction shall be the sum of these installments,
provided they are related.
Transactions of €15,000 or more are covered.
and -
4.
Art. 3(6) of the Directive
(see Annex)
FATF R. 5 (Glossary)
Beneficial Owner
The definition of “Beneficial Owner” establishes minimum criteria
(percentage shareholding) where a natural person is to be considered
as beneficial owner both in the case of legal persons and in the case of
legal arrangements
“Beneficial Owner” refers to the natural person(s) who ultimately
owns or controls a customer and/or the person on whose behalf a
transaction is being conducted. It also incorporates those persons who
exercise ultimate effective control over a legal person or legal
219
Key elements
Description
Analysis
Conclusion
Recommendations
Comments
arrangement.
Which approach does your country follow in its definition of
“beneficial owner”? Please specify whether the criteria in the EU
definition of “beneficial owner” are covered in your legislation.
and The Czech Republic has implemented the definition of “beneficial
owner” to the Section 4 (4)of the AML Act by using both approaches
provided by 3. AML Directive and FATF.
The beneficial owner is a natural person having real or legal direct or
indirect control over the management or operations of the entrepreneur;
holding in person or in contract with a business partner or partners more
than 25 per cent of the voting rights of the entrepreneur or who is, for
other reasons, a real recipient of such entrepreneur’s revenue.
The legal definition of beneficial owner as included in the AML/CFT
Law (Section 4 (4)) are in line with the definition of Art 3(6) of the
EU Directive except that with reference to Art 3 (6) (b), the AML/CFT
Law is applicable exclusively to a foundation or a foundation trust
rather than to all legal entities which administer and distribute funds.
and The Czech authorities stated that concept of trust does not apply in the
country. Nonetheless, a specific requirement in the AML/CFT Law
specifying that the beneficiary owners cover all legal entities
administering and distributing funds should be inserted also to cover
non-Czech similar entities.
5.
Art. 2 (2)
Directive
Financial activity on occasional or very limited basis
of the Member States may decide that legal and natural persons who engage
in a financial activity on an occasional or very limited basis and where
there is little risk of money laundering or financing of terrorism
occurring do not fall within the scope of Art. 3(1) or (2) of the
Directive.
Art. 4 of Commission Directive 2006/70/EC further define this
provision.
FATF R. concerning When a financial activity is carried out by a person or entity on an
financial institutions
occasional or very limited basis (having regard to quantitative and
absolute criteria) such that there is little risk of money laundering
activity occurring, a country may decide that the application of antimoney laundering measures is not necessary, either fully or partially
(2004 AML/CFT Methodology para 23; Glossary to the FATF 40 plus
9 Special Recs.).
Key elements
Does your country implement Art. 4 of Commission Directive
2006/70/EC?
Description
Analysis
and The Czech Republic has implemented Art. 4 of the Commission Directive
2006/70/EC to the Section 34 of the AML Act. Upon request, the Ministry
may decide that an obliged entity performing any of the activities listed in
Section 2(1) of the AML Act only occasionally or in a very limited scope,
and in a way that precludes or significantly reduces the risk of such
person being exploited for the legitimisation of proceeds of crime and
financing of terrorism, shall not be considered an obliged entity under the
AML Act.
The competent Czech authorities are convinced that Art. 2 (2) of the 3
AMLD and Art. 4 of the Commission Directive 2006/70/EC were fully
implemented to the Czech AML act (Section 34).
220
Conclusion
Recommendations
Comments
Section 2 of the AML/CFT Law lists the obliged entities for AML/FT
purposes. Section 34 of the AML/CFT Law gives the power to the
Ministry that, on request by obliged entities and subject to specified
conditions, it can exempt such obliged entities from their obligations
under AML/CFT Law. The list was not seen by the evaluators, who
were informed that since 2008 more than 300 entities were exempted:
99% exchange offices as occasional activity in connection with hotels,
spas, travel agencies.
The Czech authorities can exempt legal and natural persons who
engage in a financial activity on an occasional or very limited basis,
they can also provide such exemptions to those falling within the
scope of Art. 3(1) or (2) of the EU Directive.
and The Czech legislation prohibits transactions in cash above €15,000
(Act 254/2004 Coll.) but nevertheless requires that those carrying out
cash transactions above €15,000 are obliged entities under the law.
The Czech authorities explained that according to Act 254/2004 Coll.
cash transactions from the same provider to the same recipient made
within one day exceeding €15,000 are prohibited. If such cash
transactions exceed €15,000 in the time period of more than one day
the recipient is obliged entity according to the Section 2 (2d,e).
The exemptions under Section 34 may be extended even to obliged
entities that are within the scope of Art. 3(1) or (2) of the EU
Directive. The AML/CFT Law should specify clearly that such entities
are not exempted from their AML/FT obligations.
Furthermore, the Czech authorities should draw up a list, based on a
risk-based approach of institutions that do not pose risk in respect of
ML/FT.
6.
FATF R. 5
Key elements
Description
Analysis
and
Simplified Customer Due Diligence (CDD)
By way of derogation from the relevant Article the Directive
establishes instances where institutions and persons may not apply
CDD measures. However the obligation to gather sufficient CDD
information remains.
Although the general rule is that customers should be subject to the
full range of CDD measures, there are instances where reduced or
simplified measures can be applied.
Is there any implementation and application of Art. 3 of Commission
Directive 2006/70/EC which goes beyond the AML/CFT
Methodology 2004 criterion 5.9?
These provisions were implemented into Section 13(1) of the AML
Act which stipulates exceptions from the identification and due diligence
requirements. According to this provision the obliged entity may decide
not to perform any identification or due diligence should the customer be:
a) a credit or financial institution,
b) a foreign credit or financial institution operating in the territory of a
country imposing and enforcing anti-money laundering and financing
of terrorism measures equivalent to those imposed by the European
Communities acquis and supervised to that respect,
c) a company whose securities are traded at a regulated market and
which is subject to reporting requirements equivalent to those
enforced by the European Communities acquis,
221
d) a beneficial owner of assets deposited with a public notary, lawyer,
licensed executor, or court,
e) a central Czech public authority, the Czech National Bank, or a
higher self-governing territorial entity, or
f) a customer:
1. holding important public positions under the European
Communities acquis,
2. whose identification data are publicly available and there is no
reason to doubt their correctness,
3. whose activities are transparent,
4. whose books show a true and real picture of their accounting
and financial situation,
5. who is accountable either to a European Union body or bodies
of a European Union or European Economic Area member state
and who is subject to other relevant control mechanisms.
According to the Section 13 (3) of the AML Act the obliged entities
shall always verify that all conditions required had been met and that
none of the customers, products, or transactions represents a risk of
legitimisation of proceeds of crime or financing of terrorism. In case
of doubt, no exceptions shall be applied.
Conclusion
Recommendations
Comments
Section 13 (1) enables obliged entities to decide not to apply CDD
procedures at all rather than simplified or reduced CDD measures.
Furthermore, the simplified/reduced CDD is subject to Article 40 (1)
(b) which requires the establishment of technical criteria for assessing
whether the circumstances represent low risk as well as Article 11 (3)
which requires the gathering of sufficient information to establish if
the customer qualifies for an exemption. None of these conditions
were evident.
and
Consider making technical criteria
circumstances represent low risk.
for
assessing
whether
7.
Politically Exposed Persons (PEPs)
Art. 3 (8), 13 (4) of the The Directive defines PEPs broadly in line with FATF 40 (Art. 3(8)).
Directive
It applies enhanced CDD to PEPs residing in another Member State or
(see Annex)
third country (Art. 13(4)). Directive 2006/70/EC provides a wider
definition of PEPs (Art. 2) and removal of PEPs after one year of the
PEP ceasing to be entrusted with prominent public functions (Art.
2(4)).
FATF R. 6 and Glossary Definition similar to Directive but applies to individuals entrusted with
prominent public functions in a foreign country.
Key elements
Does your country implement Art. 2 of Commission Directive
2006/70/EC, in particular Art. 2(4), and does it apply Art. 13(4) of the
Directive?
Description
and Art. 13(4) of the 3AMLD was implemented into Section 9(1) of the
Analysis
AML Act. The obliged entity shall, prior to a transaction with a
politically exposed person, perform the customer due diligence process.
The definition of PEP is provided in Section 4(5) of the AML Act.
222
Moreover the measures against PEPs are applied also to our citisens in
exposed political functions abroad. Art. 2 was implemented into Section
4(5).
Conclusion
Recommendations
Comments
Article 13(4) of the Directive 2005/60/EU and Articles 2(4) of
Directive 2006/70/EC have been implemented in the AML/CFT Law.
But there are no requirements in terms of article 13(4) (b) (c) and (d).
Although it can be inferred that the CNB Decree 281/2008 can be
extended to PEPs (Article 5 (3) (c) (3) on the basis of the need to
categorise clients under risk profiles if a person has a political risk
profile, there is no specific reference that the Decree applies to PEPs
as defined in the Directive. Furthermore, there is no requirement for
senior management approval. In addition, the Degree applies to
obliged entities supervised by the CNB and does not extend to other
obliged entities.
and The full requirements of the EU Directive should be enshrined in the
AML/CFT Law.
8.
Art. 13
Directive
Correspondent banking
(3) of the For correspondent banking, Art. 13(3) limits the application of
Enhanced Customer Due Diligence (ECDD) to correspondent banking
relationships with institutions from non-EU member countries.
FATF R. 7
Recommendation 7 includes all jurisdictions.
Key elements
Does your country apply Art. 13(3) of the Directive?
Description
and Art. 13(3) of the 3AMLD was implemented into Section 25(1-3) of the
Analysis
AML Act. According to these provisions a credit institution shall not
enter a corresponding bank relationship with a foreign credit or similar
institution which is incorporated in the commercial or similar register in a
country where it does not have a physical presence and its management is
not physically located in that country, and which is not affiliated to any
regulated financial group; which is known for allowing the use of its
account by an institution referred to above; or which does not apply
measures against legitimisation of proceeds of crime and financing of
terrorism of the standard that is at the least required by the law of the
European Communities; and if it had already entered such a relationship,
it must terminate it in the shortest practicable period.
Conclusion
Section 25 (1) ( c) of the AML/CFT Law does not allow credit
institution to enter a corresponding bank relationship with a foreign
credit or similar institution which does not apply AML/CFT measures
to the standard that are at least required by the European
Communities. In accordance with Section 13 (1) (a) and (b) of the
AML/CFT Law, credit and financial institutions in the Czech Republic
or in countries with EU equivalent AML/CFT measures are exempted
from both CDD and ECDD. Thus, there is no need to carry out either
CDD or ECDD even with institutions that are outside the EU but with
an equivalent standard. Moreover, for EU institutions, not even CDD
is required. There is no requirement for obliged entities to gather the
necessary information to assess the reputation of an institution, assess
its controls and document the respective responsibilities of each
institution and satisfy themselves that the respondent institution has
verified identification in respect of payable-through accounts.
Recommendations and 223
Comments
9.
Art. 13 (6)
Directive
FATF R. 8
Key elements
Description
Analysis
Conclusion
Enhanced Customer Due Diligence (ECDD) and anonymity
of the The Directive requires ECDD in case of ML or TF threats that may
arise from products or transactions that might favor anonymity.
Financial institutions should pay special attention to any money
laundering threats that may arise from new or developing technologies
that might favor anonymity [...].
The scope of Art. 13(6) of the Directive is broader than that of FATF
R. 8, because the Directive focuses on products or transactions
regardless of the use of technology. How are these issues covered in
your legislation?
and These provisions were implemented into Section 15(1) and Section
11(3) of the AML Act. The obliged entity shall reject to make a
transaction or to enter in a business relationship should there be an
identification requirement and should the customer refuse the
identification process or fail to submit the power of attorney, should they
fail to assist the due diligence process, should the customer identification
or due diligence be impossible for other reasons, or should the person
performing the customer identification or due diligence have a reason to
doubt the correctness or authenticity of documents submitted. The obliged
entity shall refuse the customer identification information, data indicating
the purpose and nature of the business transaction, and information on the
identity of the beneficial owner, should it have a reason to doubt the
correctness or completeness of such information. Moreover these
provisions are contained in other Sections of the AML Act (identification,
CDD etc.)
Section 11 (4) of the AML/CFT Law requires obliged entities to
identify customers, identity in the case of a remote agreement on
financial services under the Civil Code by requiring that the first
payment be made via an account kept on the customer’s name in a
credit institution or a foreign credit institution operating in the EU or
the EEA and requiring the customer to submit to the obliged entity a
copy of a document verifying the existence of an account with the said
credit institution together with copies of the relevant parts of their
identity card and at least one more identification document from
which the obliged entity may determine the customer’s identification
data, type and serial number of such identity cards, issuing country or
institution, and validity. Obliged entities met during the on-site
evaluation confirmed that they always require face-to-face customer
identification for initial transactions except where allowed by Section
13 of the AML/CFT Law.
Recommendations
Comments
Article 13(6) of Directive is implemented to the extent of requiring
identification. There is no requirement in respect of new or developing
technologies that might favour anonymity.
and -
224
10.
FATF R. 9
Key elements
Description
Analysis
Conclusion
Recommendations
Comments
Third Party Reliance
The Directive permits reliance on professional, qualified third parties
from EU Member States or third countries for the performance of
CDD, under certain conditions.
Allows reliance for CDD performance by third parties but does not
specify particular obliged entities and professions which can qualify as
third parties.
What are the rules and procedures for reliance on third parties?
Are there special conditions or categories of persons who can qualify
as third parties?
and The Czech Republic implemented Art. 15 of the 3AMLD to the
Section 11 of the AML Act and specified particular obliged entities
and professions which can be qualified as third parties (Section 11(1)
of the AML Act). These third parties can be credit or financial
institutions or foreign credit or financial institution (with the exception of
a person licensed to perform foreign currency exchange, a holder of a
postal licence, a payment institution whose activity consists usually of
providing payment services which such transfer of funds where neither
the payer, nor the payee use any account with the payment service
provider of the payer, and a payment service provider of small extent).
In terms of Section 11 (1) of the AML/CFT Law obliged entities can
make third party reliance in respect of institutions located in the
territory of a country, which enforces equivalent identification
measures. The conditions are specified in Section 11 (2) of the
AML/CFT Law.
and -
11.
Auditors, accountants and tax advisors
Art. 2 (1)(3)(a) of the CDD and record keeping obligations are applicable to auditors,
external accountants and tax advisors acting in the exercise of their
Directive
professional activities.
FATF R. 12
CDD and record keeping obligations
1. do not apply to auditors and tax advisors;
2. apply to accountants when they prepare for or carry out
transactions for their client concerning the following activities:
• buying and selling of real estate;
• managing of client money, securities or other assets;
• management of bank, savings or securities accounts;
• organisation of contributions for the creation, operation or
management of companies;
• creation, operation or management of legal persons or
arrangements, and buying and selling of business entities
(2004 AML/CFT Methodology criterion 12.1(d)).
Key elements
The scope of the Directive is wider than that of the FATF standards
but does not necessarily cover all the activities of accountants as
described by criterion 12.1(d). Please explain the extent of the scope
of CDD and reporting obligations for auditors, external accountants
and tax advisors.
Description
and The Czech Republic implemented the Art. 2 of the 3AMLD.
225
Analysis
Conclusion
Recommendations
Comments
12.
Art. 2(1)(3)e)
Directive
FATF R. 12
of
Key elements
Description
Analysis
Conclusion
Recommendations
Comments
According to the Section 2(1e) auditors, tax advisors and chartered
accountants are obliged entities and they have to apply CDD measures
according to Section 9 and to keep records according to Section 16 of
the AML Act.
Auditors, external accountants and tax advisors acting in the exercise
of their professional activities (except as provided in Section 26 of the
AML/CFT Law - ie during the representation of the customer in court,
or in connection with court proceedings, including the giving of advice
to instigate or avoid such proceedings) are required to carry out CDD
and keep necessary documentation as per other obliged entities under
the AML/CFT Law.
and -
High Value Dealers
the The Directive applies to natural and legal persons trading in goods
where payments are made in cash in an amount of €15 000 or more.
The application is limited to those dealing in precious metals and
precious stones.
The scope of the Directive is broader. Is the broader approach adopted
in your jurisdiction?
and The Czech Republic has adopted the broader approach. According to
Section 2 (2d) of the AML Act the obliged entity is also an
entrepreneur receiving payments in cash in an amount of or exceeding
€15,000. A payment in commodities of high value, especially precious
metals or precious stones, shall be regarded as a payment in cash (Section
54(4).
Act 254/2004 prohibits payment in cash above €15,000 except as
exempted under the same act (in respect of payment of taxes, charges
etc, payments in respect of employment, pension, insurance premium
and claims, those designated as notarial deposits as well in times of
crisis conditions. Crisis conditions are defined in the act No. 240/2000
Coll., on Crisis Management. as exceptional incident (such as
disaster), violation of critical infrastructure or other danger, that lead
to declaration of emergency state, emergency conditions. Section 2 (2)
(d) requires an entrepreneur to become an obliged entity for AML/FT
purposes in respect of receipt of payments in cash in an amount of or
exceeding EUR 15,000. Thus, the requirement for reporting payments
made in cash in an amount of €15,000 or more is not limited to those
dealing in precious metals and precious stones.
and -
13.
FATF R. 16
Key elements
Casinos
Member States shall require that all casino customers be identified and
their identity verified if they purchase or exchange gambling chips
with a value of €2 000 or more. This is not required if they are
identified at entry.
The identity of a customer has to be established and verified when he
or she engages in financial transactions equal to or above €3 000.
In what situations do customers of casinos have to be identified?
226
Description
Analysis
Conclusion
Recommendations
Comments
What is the applicable transaction threshold in your jurisdiction for
identification of financial transactions by casino customers?
and The Czech Republic implemented Art. 10 of the 3AMLD to the
Section 36(2) of the act no. 202/1990 Coll., on lotteries and other
similar games, as amended by act no. 254/2008 Coll. All casinos are
obliged to identify its customers. The scope of identification is based
on the AML Act.
The identity of customers is required to be established and verified
upon entry to a casino. Whereas, the evaluators were informed by
obliged entities that they also require identification when customers
purchase or exchange gambling chips, according to the authorities
there is no need for such verification. Indeed, such requirement is not
envisaged in the provisions under Act 202/1990 Coll., and. 254/2008
Coll.
and -
227
14.
Reporting by accountants, auditors, tax advisors, notaries and other independent
legal professionals via a self-regulatory body to the FAU
Art. 23 (1) of the This article provides an option for accountants, auditors and tax
advisors, and for notaries and other independent legal professionals to
Directive
report through a self-regulatory body, which shall forward STRs to the
FAU promptly and unfiltered.
FATF Recommendations The FATF Recommendations do not provide for such an option.
Key elements
Does the country make use of the option as provided for by Art. 23 (1)
of the Directive?
Description
and The Czech Republic has used this option. The auditors, licensed
Analysis
executors, tax advisors, lawyers and public notaries report through a
self-regulatory bodies which forward STRs to the FAU. (Section 2627 of the AML Act.)
Conclusion
The Czech authorities have taken up the option to allow accountants,
auditors, tax advisors, lawyers and public notaries to report through
their self-regulatory body which forward the submitted STRs to the
FAU following verification.
Recommendations and Comments
15.
Reporting obligations
Arts. 22 and 24 of the The Directive requires reporting where an institution knows, suspects, or
Directive
has reasonable grounds to suspect money laundering or terrorist financing
(Art. 22). Obliged persons should refrain from carrying out a
transaction knowing or suspecting it to be related to money laundering
or terrorist financing and to report it to the FAU, which can stop
the transaction. If to refrain is impossible or could frustrate an
investigation, obliged persons are required to report to the FAU
immediately afterwards (Art. 24).
FATF R. 13
Imposes a reporting obligation where there is suspicion that funds are
the proceeds of a criminal activity or related to terrorist financing.
Key elements
What triggers a reporting obligation? Does the legal framework
address ex ante reporting (Art. 24 of the Directive)?
Description
and These provisions were implemented into Sections 18 and 20 of the
Analysis
AML Act. In Section 18 the STR is specified and Section 20 provides
for suspension of a transaction. If there is a danger that an immediate
execution of a transaction would hamper or substantially impede securing
of proceeds of crime or money intended to finance terrorism, the obliged
entity may execute the customer’s transaction recognised as suspicious no
earlier than 24 hours after the Ministry had received the suspicious
transaction report. The obliged entity shall make sure that the respective
assets will not be handled in violation of this Act. The obliged entity shall
inform the Ministry in the suspicious transaction report that the
transaction had been suspended. The Ministry could prolong this period to
72 hours.
Should the Ministry file a criminal complaint to the law enforcement
body, the obliged entity shall perform the transaction in 3 calendar days
after the criminal complaint had been filed unless the law enforcement
bodies have decided to seize such transaction. The Ministry shall inform
the obliged entity of the criminal complaint prior to the expiration of the
period.
228
Conclusion
Recommendations
Comments
In practice, attempted transactions are reported by obliged entities to the
FIU - with 54 STRs attempted transactions reported.
Section 20 of the AML/CFT Law provides that should there be a danger
that an immediate execution of a transaction would hamper or
substantially impede securing of proceeds of crime or money intended to
finance terrorism, obliged entity may suspend the transaction and only
execute it after 24 hours after sending an STR to the Ministry.
and -
16.
Tipping off (1)
Art. 27 provides for an obligation for Member States to protect employees
of reporting institutions from being exposed to threats or hostile actions.
FATF R. 14
No corresponding requirement (directors, officers and employees shall
be protected by legal provisions from criminal and civil liability for
“tipping off”, which is reflected in Art. 26 of the Directive)
Key elements
Is Art. 27 of the Directive implemented in your jurisdiction?
Description and Analysis This provision is specified in Section 18(3) of the AML Act. The
suspicious transaction report shall not reveal any information about the
obliged entity’s employer or contractor who had disclosed the suspicious
transaction. See also Section 38 of the AML Act (Obligation of
Confidentiality).
Conclusion
Article 27 of the EU Directive is indirectly implemented through the
requirement (in Section 18(3) that information regarding who
disclosed the STR is prohibited. However, in the event of criminal
proceedings, the evaluators were informed that such persons may be
required to provide evidence in court although this exemption is not
specified under the AML/CFT Law. Furthermore, Section 34 prohibits
the obliged entities and their employees, employees of the Ministry,
employees of other supervisory authorities as well as natural persons
working for an obliged entity, the Ministry or another supervisory
authority on a basis of a contract other than an employment contract
from disclosing the facts relating to suspicious transaction reports and
investigation, the steps taken by the Ministry or the obligation to
report a suspicious transaction.
Recommendations
and Comments
17.
FATF R. 14
Key elements
Description and Analysis
Tipping off (2)
The prohibition on tipping off is extended to where a money
laundering or terrorist financing investigation is being or may be
carried out. The Directive lays down instances where the prohibition is
lifted.
The obligation under R. 14 covers the fact that an STR or related
information is reported or provided to the FAU.
Under what circumstances are the tipping off obligations applied?
Are there exceptions?
These provisions are implemented in Section 38 of the AML Act. The
obliged entities and their employees, employees of the Ministry,
employees of other supervisory authorities as well as natural persons
working for an obliged entity, the Ministry or another supervisory
authority on a basis of a contract other than an employment contract shall
229
be obliged to keep confidential the facts relating to suspicious transaction
reports and investigation, the steps taken by the Ministry or the obligation
to report a suspicious transaction. The exceptions are specified in Section
39 of the AML Act.
The exceptions included under Section 39 are broader than those laid
down by the EU Directive. Exemption from confidentiality is thus
extended inter alia in respect of
a. the competent financial directorate or the General Directorate of
Customs when there are circumstances that may be material to
the jurisdiction of the territorial fiscal authorities or customs
authorities;
b. administrative authorities performing tasks in the system of
certification of raw diamonds subject to another legal
instrument;
c. an authority mandated by another law to decide on the
revocation of a licence for business or other independent gainful
activity upon the lodging of a motion filed by the Ministry,
d. a financial arbitrator deciding, according to another law, in a
dispute of the claimant against an institution,
e. a person who could raise a claim for compensation for damages
incurred as a result of the implementation of the AML/CFT
Law (subject to certain conditions),
f. a court adjudicating civil law disputes concerning a suspicious
transaction or a claim for compensation for damages incurred as
a result of complying with obligations under the Act,
g. the National Security Office, Ministry of Interior or an
intelligence service in the process of a clearance procedure in
accordance with other legal instrument,
h. the competent intelligence service, provided the information is
material for the meeting of the statutory tasks specified for the
intelligence service.
Some of these exemptions appear to go beyond what is required for
AML/FT requirement for investigation and court procedures as
contemplated under Article 28 of the Directive. According to the
Czech authorities, the above mentioned exemptions reflect the
requirements of the national law. However, some exemptions seem to
compromise the AMLCFT regime, e.g. (e) a person who could raise a
claim for compensation for damages incurred as a result of the
implementation of the AML/CFT Law (subject to certain conditions).
and The Czech authorities should consider reviewing the exemption from
confidentiality to clarify when and under what circumstances the
exemptions are applicable to ensure that there is no tipping of that can
compromise ML/FT investigation. Moreover, it should include a
provision implementing Article 28 (6) of the EU Directive 2005/60/EC
to allow an obliged entity to dissuade a customer from engaging in
ML/FT.
Conclusion
Recommendations
Comments
18.
Art. 34
Directive
(2)
of
Branches and subsidiaries (1)
the The Directive requires credit and financial institutions to communicate the
relevant internal policies and procedures where applicable on CDD,
reporting, record keeping, internal control, risk assessment, risk
management, compliance management and communication to branches
230
FATF R. 15 and 22
Key elements
Description
Analysis
Conclusion
Recommendations
Comments
19.
Art.
31(3)
Directive
of
FATF R. 22 and 21
Key elements
Description
Analysis
Conclusion
Recommendations
Comments
and majority owned subsidiaries in third (non EU) countries.
The obligations under the FATF 40 require a broader and higher standard
but do not provide for the obligations contemplated by Art. 34 (2) of the
EU Directive.
Is there an obligation as provided for by Art. 34 (2) of the Directive?
and Art. 34(2) of the 3AMLD was implemented into Section 25(4) of the
AML Act. A credit and financial institution shall, in its branches and
subsidiaries which it has a controlling interest in, located in countries that
are not members of the European Union or the European Economic Area,
apply the practice of customer due diligence and record keeping in the
scope that is at the least required by the law of the European
Communities. To this end, it shall provide them with relevant information
of the practice and procedures to be applied.
The EU Directive obligation as provided in Article 34 (2) is
implemented via Section 25(4) of the AML/CFT Law.
and
Branches and subsidiaries (2)
the The Directive requires that where legislation of a third country does not
permit the application of equivalent AML/CFT measures, credit and
financial institutions should take additional measures to effectively handle
the risk of money laundering and terrorist financing.
Requires financial institutions to inform their competent authorities in
such circumstances.
What, if any, additional measures are your financial institutions
obliged to take in circumstances where the legislation of a third
country does not permit the application of equivalent AML/CFT
measures by foreign branches of your financial institutions?
and The Czech Republic implemented Art. 31(3) of the 3AMLD into the
Section 25(4) of the AML Act. If the law of the country does not allow
for the application of the same practice as in the other countries, the
institution informs the Ministry of Finance; in such a case, the obliged
entity adopts appropriate supplementary measures to effectively mitigate
the risk of exploitation for the legitimisation of proceeds of crime or
financing of terrorism, and to prevent the transfer of these risks to the
territory of the Czech Republic and other member states of the European
Union or the European Economic Area.
Section 25 (4) of the AML/CFT Law requires the taking of
supplementary measures in case where legislation of a third country
does not permit the application of equivalent AML/CFT measures.
The supplementary measures are not specified in the AML/CFT Law
and only partially and indirectly captured within Decree 281/2008
Coll. as a result of the risk classification of clients and related
procedures. It is only by extension that the Decree can be applied to
subsidiaries/branches based in third countries which do not apply EU
equivalent legislation.
and Although currently there are no subsidiaries or branches of Czech
institutions that are located outside the EU, the Czech authorities
should still issue specific guidelines in respect of the supplementary
measures to be taken by credit and financial institutions in respect of
231
subsidiaries/branches based in third countries which do not apply EU
equivalent legislation.
20.
Art. 25
Directive
(1)
of
FATF R.
Key elements
Description
Analysis
Conclusion
Recommendations
Comments
Supervisory Bodies
the The Directive imposes an obligation on supervisory bodies to inform
the FAU where, in the course of their work, they encounter facts that
could contribute evidence of money laundering or terrorist financing.
No corresponding obligation.
Is Art. 25(1) of the Directive implemented in your jurisdiction?
and These provisions were implemented into Section 35 (1,5) of the AML
Act. The Ministry of Finance acts as the supervisory authority performing
the administrative supervision of the compliance with obligations set out
in the AML Act on the part of the obliged entities. The compliance with
obligations set out in the AML Act may be also supervised by the Czech
National Bank in respect of persons subject to its supervision;
administrative authorities with powers to supervise the compliance with
the legislation regulating lotteries and other similar games, and in respect
of holders of licences to operate betting games; the Czech Trade
Inspection in respect of persons listed in Section 2(1j, k) of the AML Act.
If the supervisory authority finds facts that may be related to the
legitimisation of proceeds of crime or financing of terrorism, it has to
immediately inform the Ministry of Finance of these findings and provide
it with all necessary information.
Section 35 (5) empowers supervisors under Section 35 (1) [the Czech
National Bank, the administrative authorities with powers to supervise
the compliance with the legislation regulating lotteries and other
similar games, and in respect of holders of licences to operate betting
games listed) and the Czech Trade Inspection in respect of persons
listed in Section 2(1j) and (1k)] of the AML/CFT Law to inform the
FAU regarding the identification data of the disclosed person,
identification data of all the parties to the transaction, information on
all relevant features of the transaction and any other facts which may
be important for an analysis of the suspicious transaction and potential
application of measures against legitimisation of proceeds from crime
and financing of terrorism.
Section 26 (3) allows an STR to be made to the Chamber of Auditors,
Chamber of Licensed Executors and Chamber of Tax Advisors
(as applicable) while Section 27 extends the obligation to be made to
Czech Bar Association, Chamber of Notaries (as applicable). The
section requires these bodies to transmit properly filled STRs
submitted by the relevant obliged professionals to the Ministry. There
is no provision for these bodies to carry out inspections on these
professional and consequently no obligation to inform the FAU where,
in the course of their work, they encounter facts that could contribute
to evidence of ML/FT. FAU advised that chartered accountants report
independently.
and Section 35 of the AML/CFT Law could be extended to the Chamber
of Auditors; to the Chamber of Licensed Executors; to the Chamber of
Tax Advisors; to the Czech Bar Association and to the Chamber of
Notaries.
232
21.
FATF R.
Key elements
Description
Analysis
Conclusion
Recommendations
Comments
Systems to respond to competent authorities
The Directive requires credit and financial institutions to have systems in
place that enable them to respond fully and promptly to enquires from the
FAU or other authorities as to whether they maintain, or whether during
the previous five years they have maintained, a business relationship with
a specified natural or legal person.
There is no explicit corresponding requirement but such a requirement
can be broadly inferred from Recommendations 23 and 26 to 32.
Are credit and financial institutions required to have such systems in
place and effectively applied?
and Art. 32 of the 3 AMLD was implemented into Section 25(6) of the
AML Act. The time period is even 10 years. Upon request from the
Ministry and by the deadline granted by the Ministry, the credit or
financial institution shall disclose the information whether it maintains, or
has in the previous 10 years maintained, commercial relations with a
specific natural or legal person, whom it was obliged to identify, and any
details of the nature of the relations. To this end, the credit or financial
institution shall implement an effective system, whose scope is
commensurate to the size of the institution and the nature of its business
operations.
Section 25 (6) of the AML/CFT Law specifically requires, within the
concept of proportionality, credit or financial institution to implement
an effective system in order to disclose to the FAU information
whether it maintains, or has maintained, in the previous 10 years,
commercial relations with a specific natural or legal person, whom it
was obliged to identify, and any details of the nature of the relations.
This is complemented by a requirement to have internal procedures for
reporting of data kept by the obliged entities to the relevant authorities
as well a legal obligation to respond within the time stipulated by the
authority (Section 24 of the AML/CFT Law). The obligation for
maintaining records is ten years.
and -
22.
FATF R. 20
Key elements
Description
Analysis
Extension to other professions and undertakings
The Directive imposes a mandatory obligation on Member States to
extend its provisions to other professionals and categories of
undertakings other than those referred to in A.2(1) of the Directive,
which engage in activities which are particularly likely to be used for
money laundering or terrorist financing purposes.
Requires countries only to consider such extensions.
Has your country implemented the mandatory requirement in Art. 4 of
the Directive to extend AML/CFT obligations to other professionals
and categories of undertaking which are likely to be used for money
laundering or terrorist financing purposes? Has a risk assessment been
undertaken in this regard?
and The scope of obliged entities is specified in Section 2 of the AML Act.
The Czech Republic has fully implemented the Art. 2(1) of the
3AMLD and furthermore extend the application of the AML Act to
several other obliged entities (e.g. persons licensed to trade in items of
cultural heritage, items of cultural value, or to act as intermediary in such
services; persons licensed to trade in used goods, act as intermediary in
233
Conclusion
Recommendations
Comments
such trading, or receive used goods in pawn).
The FAU has not carried out a formal risk assessment to determine
which profession should be captured under the AML/CFT obligations.
The evaluators were informed that internet casinos are not permissible
in the Czech Republic. On the other hand, the AML/CFT Law extends
AML/CFT obligations to persons licensed to trade in items of cultural
heritage, items of cultural value, or to act as intermediary in such
services; persons licensed to trade in used goods, act as intermediary
in such trading, or receive used goods in pawn as well as entrepreneurs
in receipts of payments in cash exceeding €15,000. Thus, the
mandatory obligations of the EU Directive are captured as the
AML/CFT has been extended to all cash transactions above €15,000.
and It is recommended that a formal risk assessment is carried out to
determine which professional category, other than those specified in
Section 2 of the AML/CFT Law , AML/FT obligations are applicable
and apply the obligations to identified professional categories even for
transactions under €15,000
23.
Art.
11,
28(4),(5)
Directive
FATF R.
Specific provisions concerning equivalent third countries?
16(1)(b), The Directive provides specific provisions concerning countries which
of
the impose requirements equivalent to those laid down in the Directive
(e.g. simplified CDD).
There is no explicit corresponding provision in the FATF 40 plus
9 Recommendations.
Key elements
How, if at all, does your country address the issue of equivalent third
countries?
Description
and These provisions were implemented into Sections 13(1b), 11(1b),
Analysis
39(2a) of the AML Act and also to the Section 6(1h) of the AML Act.
The Czech Republic has chosen the opposite approach: we public the
list of risk countries on web sites of the Ministry of Finance.
Conclusion
Recommendations
Comments
There is no specific provisions in the AML/CFT Law that requires
obliged entities to give special attention to countries that do not
sufficiently apply the FATF Recommendations. Instead, reliance is
placed on a list published by the FAU on its web site naming nonequivalent countries which are referred to by obliged entities. These
lists are widely referred to by obliged entities. Some obliged entities
informed that they supplement this list with the names of further
countries in line with (foreign) group policy. The CNB Decree
281/2008 Coll however requires credit and financial institutions to
take into consideration in its risk profile the fact that a country is nonequivalent in terms of AML/CFT. It also requires that credit and
financial institutions shall ascertain and retain risk assessment
information, check the validity and completeness of information and
update it and pay special attention to transactions. These obligations
are however not applicable to other obliged entities other than credit
and financial institutions.
and It is recommended that the FAU issues guidelines to obliged entities to
elaborate on the specific attention requirements for non-equivalent
countries.
234
APPENDIX I
Relevant EU Texts
Excerpt from Directive 2005/60/EC of the European Parliament and of the Council, formally
adopted 20 September 2005, on the prevention of the use of the financial system for the purpose
of money laundering and terrorist financing.
Article 3 (6) of EU AML/CFT Directive 2005/60/EC (3rd Directive):
(6) "beneficial owner" means the natural person(s) who ultimately owns or controls the customer
and/or the natural person on whose behalf a transaction or activity is being conducted. The beneficial
owner shall at least include:
(a) in the case of corporate entities:
(i) the natural person(s) who ultimately owns or controls a legal entity through direct or indirect
ownership or control over a sufficient percentage of the shares or voting rights in that legal entity,
including through bearer share holdings, other than a company listed on a regulated market that is
subject to disclosure requirements consistent with Community legislation or subject to equivalent
international standards; a percentage of 25 % plus one share shall be deemed sufficient to meet this
criterion;
(ii) the natural person(s) who otherwise exercises control over the management of a legal entity:
(b) in the case of legal entities, such as foundations, and legal arrangements, such as trusts, which
administer and distribute funds:
(i) where the future beneficiaries have already been determined, the natural person(s) who is the
beneficiary of 25 % or more of the property of a legal arrangement or entity;
(ii) where the individuals that benefit from the legal arrangement or entity have yet to be determined,
the class of persons in whose main interest the legal arrangement or entity is set up or operates;
(iii) the natural person(s) who exercises control over 25 % or more of the property of a legal
arrangement or entity;
Article 3 (8) of the EU AML/CFT Directive 2005/60EC (3rd Directive):
(8) "politically exposed persons" means natural persons who are or have been entrusted with
prominent public functions and immediate family members, or persons known to be close associates,
of such persons.
Excerpt from Commission Directive 2006/70/EC of 1 August 2006 laying down implementing
measures for Directive 2005/60/EC of the European Parliament and of the Council as regards
the definition of “politically exposed person and the technical criteria for simplified customer
due diligence procedures and for exemption on grounds of a financial activity conducted on an
occasional or very limited basis.
Article 2 of Commission Directive 2006/70/EC (Implementation Directive):
Politically exposed persons
235
1. For the purposes of Article 3(8) of Directive 2005/60/EC, "natural persons who are or have been
entrusted with prominent public functions" shall include the following:
(a) heads of State, heads of government, ministers and deputy or assistant ministers;
(b) members of parliaments;
(c) members of supreme courts, of constitutional courts or of other high-level judicial bodies whose
decisions are not subject to further appeal, except in exceptional circumstances;
(d) members of courts of auditors or of the boards of central banks;
(e) ambassadors, chargés d’affaires and high-ranking officers in the armed forces;
(f) members of the administrative, management or supervisory bodies of State-owned enterprises.
None of the categories set out in points (a) to (f) of the first subparagraph shall be understood as
covering middle ranking or more junior officials.
The categories set out in points (a) to (e) of the first subparagraph shall, where applicable, include
positions at Community and international level.
2. For the purposes of Article 3(8) of Directive 2005/60/EC, "immediate family members" shall
include the following:
(a) the spouse;
(b) any partner considered by national law as equivalent to the spouse;
(c) the children and their spouses or partners;
(d) the parents.
3. For the purposes of Article 3(8) of Directive 2005/60/EC, "persons known to be close associates"
shall include the following:
(a) any natural person who is known to have joint beneficial ownership of legal entities or legal
arrangements, or any other close business relations, with a person referred to in paragraph 1;
(b) any natural person who has sole beneficial ownership of a legal entity or legal arrangement which
is known to have been set up for the benefit de facto of the person referred to in paragraph 1.
4. Without prejudice to the application, on a risk-sensitive basis, of enhanced customer due diligence
measures, where a person has ceased to be entrusted with a prominent public function within the
meaning of paragraph 1 of this Article for a period of at least one year, institutions and persons
referred to in Article 2(1) of Directive 2005/60/EC shall not be obliged to consider such a person as
politically exposed.
236
VI. LIST OF ANNEXES*
* The listed Annexes are presented in a separate documents MONEYVAL(2011)1ANN
237

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